If you’re in your 50s, you may be at (or close to) your peak earning years. You also might be starting to think more seriously about retirement and whether you’ll have enough money set aside when the day comes. If you have a 澳洲幸运5官方开奖结果体彩网🐎:Roth indivi🌠dual retirement account (Roth IRA) as part of your retirement mix, it helps to know the money you withdraw isn't taxed. If you 澳洲幸运5官方开奖结果体彩网:are thinking of getting one, you must meet the income guidelines and keep your contributions under the yearly lim𓃲it.

What Is a Roth IRA?

Roth IRAs, as you may know, work much like 澳洲幸运5官方开奖结果体彩网:traditional IRAs—but in reverse. While a traditional IRA offers an immediate tax deduction for the money that you contribute, Roth IRAs do not. Withdrawals from your Roth IRA, however, can be tax-free, while withdrawals from a traditional IRA are taxed as 澳洲幸运5官方开奖结果体彩网:ordinary income.

There are several other differences between the two types of IRAs that can make the Roth variety more advantageous for some people. For example, you can withdraw your 澳洲幸运5官方开奖结果体彩网:contributions to a Roth IRA (but not its earnings) at any time without incurring taxes or penalties. With a traditional IRA, by contrast, you’ll generally owe income tax on the money, plus a 10% penalty if you’re under age 59½.

This means that a port🍎ion of the money in your Roth account will always be immediately available to you if you need it. Therefore, some parents use Roth IRAs to help save for college. If a child needs the money for tuition, it’s there, and if a child doesn’t need it, then the parent will have it for retirement.

In addition, Roth IRAs are not subject to 澳洲幸运5官方开奖结果体彩网:required♏ minimum di🍒stributions (RMDs) during your lifetime, 澳洲幸运5官方开奖结果体彩网:unlike traditional IRAs, from which you must generally begin withdrawals when you reach age 73 if you were born between 1951 and 1959 or 75 if you were born in 1960 or after. Thus, with a Roth, if you don’t need the money in retirement, you can just let it continue to compound and leave it to your grateful heirs someday. They will, however, have to withdraw it eventually—typically within five or 10 years, depending on their relationship with you.

Roth IRA Withdrawal Rules

To get the full tax benefit from a Roth IRA, you’ll need to follow some rules. To withdraw any of your account’s earnings tax-free, you must have had a Roth IRA (it can be any Roth IRA) open for at least five years. Also, you must be at least 59½ years old or face an additional 10% early withdrawal penalty.

However, there are several exceptions to the early withdrawal penalty. For example, it is waived if you become disabled, regardless of your age at the time. You also can withdraw up to $10,000 (one time only) to buy, build, or rebuild a first home for yourself, a child, or a grandchild.

Starting a New Roth IRA

If you would like to open a new Roth IRA (as opposed to 澳洲幸运5官方开奖结果体彩网:rolling over money from a traditional IRA or another retirement plan), you’ll need to be within the income limits—or else use a 澳洲幸运5官方开奖结果体彩网:backdoor Roth IRA strategy, which we’ll get to.  

In 2024, for example, married couples who file a joint tax return can make a full Roth IRA contribution if their 澳洲幸运5官方开奖结果体彩网:modified adjusted gross income (MA🎃GI) is less than $228,000. If it’s $228,000 to $240,000, they can make a reduced contribution. If their MAGI exceeds $240,000, they aren’t eligible to contribute.

The maximum Roth IRA contribution for 2024 is $8,000 if you’re age 50 or older, or $7,000 if you’re younger. That’s per person; couples can double the amount if they both have IRAs.

Backdoor Roth Loophole

To get around the in𒅌come limi꧂ts, some taxpayers use a two-step strategy that has come to be known as a backdoor Roth IRA:

• Step one — You contribute money to a traditional IRA, which has no income limits on eligibility; however, your income can affect how much of your contribution is tax deductible.
• Step two — You 澳洲幸运5官方开奖结果体彩网:convert🍌 the traditional IRA into a Roth IRA. You will have to pay income tax on the money that you convert, but you would have paid tax anyway had you been allowed to contribute to a Roth IRA to begin with.

Backdoor Roths have their critics who see them as circumventing Congress’ intentions in setting income limits. There have been attempts to curtail their use, most recently in the Biden administration’s stalled Build Back Better bill, but the strategy remains legal.

Converting Your Traditional IRA Into a Roth IRA

Converting a traditional IRA into a Roth isn’t just a tax dodge for the wealthy. Anyone with a traditional IRA can roll over all or part of it into a Roth. There are no limits on the amount of money that you can convert, but you will have to pay income tax on it. The question to ask yourself is whether it makes more sense in your situation to convert and pay the taxes now (in return for tax-free income later) or just keep the money in your traditi▨onal IRA and worry about the taxes later.

Consider Your Tax Bracket

One consideration is whether you expect to be in a lower 澳洲幸运5官方开奖结果体彩网:tax bracket after you retire than you are in today, in which case waiting could make sense. Another is whether today’s 澳洲幸运5官方开奖结果体彩网:tax rates will remain in place⛦ 10, 20, or more years from now. No one knows, of course, but if tax rates rise substantially, then converting sooner rather than later 💯could be a smart move. 

If you decide to convert, you may want to spread the process over several years, especially if a lot of money is involved. Taking too big of a chunk at once might mean that some or all of that money will push you into an unnecessarily high 澳洲幸运5官方开奖结果体彩网:marginal tax bracket.

In 2025, for example, a single taxpayer will pay 24% on income from $103,350 to $197,300 (up from $100,525 to $191,950 in 2024) and 32% on income from $197,300 to $250,525 (up from $191,950 to $243,725 in 2024). Thus, if they earn $120,000 a year, they could convert up to $120,000 and pay 24% tax on the transaction; however, anything beyond $197,350 (or $191,950 in 2024) would jump up to a rate of 32% or higher. They could save at least 8% simply by waiting another year to move more money.

Look at Your Income

If your income takes a dip in a particular year💦—possibly due to a layoff, a slow economy, or early retirement—that can also create a good opportunity to do a conversion at a lower tax cost. Similarly, if the stock market is in a slump—and if that’s where much of your traditional IRA is invested—you’ll pay less in taxes than you would when the market rebounds and your account’s holdings are worth more.

Remember that there is ordinarily a 10% penalty if you withdraw any of the money you converted within the first five years of opening a Roth account; however, there’s an exception once you reach age 59½. In addition, you’ll avoid the penalty if you already have some kind of Roth IRA in your name.

For that reason, it could pay to open a Roth account ❀as soon as possible and start theꦚ five-year clock ticking, even if you don’t anticipate doing a conversion for several years.

Rolling Over a 401(k) (or Similar Pl🐽anဣ) Into a Roth IRA

A final way to get yourself a Roth IRA is to roll over a 401(k), 403(b), or 457(b) plan when you leave your current job or if you still happen to have one from your time with a former employer. As with converting from a traditional IRA, 澳洲幸运5官方开奖结果体彩网:you’ll owe income tax on the money. If it’s a substantial sum, you might want to roll a portion into a Roth and the rest into a traditional IRA, to be converted later.

The Bottom Line

Even if your retirement is 10, 20, or more years off, now is a good time to consider the pros and cons of a Roth IRA. The main pro is tax-free income🦄 during retirement. The main con is a potentially whopping tax bill now. However, if you believe a Roth IRA makes sense for you, there are ways to get on🥀e while also minimizing the tax burden.