New York - The Roth IRA is a non-deductible tax-free IRA. It may be funded solely with after-tax or nondeductible contributions.
The following are the key characteristics of the Roth IRA
There are no tax deductions allowed for contributions
Income accumulates tax-free in the account
Distributions are tax-free once a 5-ear holding requirement is met
Roth IRA proceeds can be left to heirs tax-free
- Contributions can be made beyond age 70 1/2
No distributions are required after 70 1/2 but are required after death
Rollovers are permitted from one Roth IRA to a non-Roth IRA
In 2023, if you are under the age of 50, you can contribute up to $6,500 to your ROTH, or $7,500 if you are age 50 or over. For 2023, you can contribute to your ROTH IRA as long as you have taxable income under yearly IRS limits. In 2023, ROTH IRA income lists are $138,00 for a single adult and $219,000 for married persons who are filing jointly for 2023.
Effective January 1, 2023, RMDS will increase to 73 with the penalty for failing to take an RMD at 25%. The penalty can be reduced to 10% for IRA owners if the owner withdraws the RMD previously not taken and submits a corrected tax return in a timely manner. Starting in 2024, RMDS will not be required from ROTH accounts in employer retirement accounts.
Distributions from a Roth IRA are non-taxable if made at least five years after the first taxable year in which a contribution was made, or if after age 59 1/2, or after death, or on the account of disability, or for qualified first-home purchases.
In general, many financial advisers believe that for most persons, all new IRA contributions should go into a Roth IRA relative to a regular IRA. The difference is that withdrawals are tax-free rather than taxable (if the money has been in the account for five years and you are over 59 1/2 at the of withdrawal of if the money is used for qualified reasons). Regular IRA contributions are subject to the traditional IRA distribution. This is true even if you are allowed to deduct IRA contributions from your taxable income.
The Roth IRA is complex and details about the ROTH IRA can be found in IRS Publication 590-A.
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