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The Quick and Easy Guide to Roth IRAs

Posted by Seton McAndrews | CFP®, Vice President Investments
May 2, 2018

what is a roth iraWith Tax Day just behind us, it seems like a good opportunity to focus on the type of retirement income the IRS almost never meddles with: tax-exempt income!

Tax-exempt income is any income that is not subject to federal, state, and/or local income. In this case, income sources that are considered to have been previously taxed and therefore, not subject to further taxation. So, here’s your “what you need to know” guide for Roth IRAs.

What is a Roth IRA?

A Roth IRA is a retirement account that has three essential features:

  • The owner’s contributions are not tax-deductible;
  • BUT, the assets in the account grow tax free over time;
  • AND, the distributions taken from the account, generally speaking, are also tax-free once the owner reaches retirement age.

What Are the Contribution Limits for a Roth IRA?

For 2018, the combined total that you can contribute to all of your traditional IRAs and Roth IRAs is $5,500.

So, for example, if you only have a Roth IRA, you can contribute a total of $5,500 this year. If you have a traditional IRA and you plan to contribute $3,000 to it this year, then you can only contribute $2,500 to the Roth account.

If you’re over the age of 50, the combined IRA contribution total goes up to $6,500 for the year.

Am I Eligible to Open a Roth IRA? What are the Roth IRA Income Limits?

This is where it gets a bit tricky. Generally speaking, high income earners get phased out of being able to contribute to a Roth IRA.

If you are married, file jointly, and make over $199,000 in combined income, then you cannot contribute to a Roth IRA. If you’re married, file jointly, and make $189,000 or less, than you can contribute the entire $5,500 (or $6,500) for the year. If you fall somewhere in between, then you can contribute a reduced amount.

For single filers, the limits fall. If you make more than $135,000, than you cannot contribute to a Roth IRA. If you make $120,000 or less, then you can contribute up to the full allowable amount. If you fall somewhere in between, then you can contribute a reduced amount.

Roth IRA vs. IRA: What’s the Difference Between Them?

A traditional IRA essentially works the other way around. In a traditional IRA, your contributions are generally tax-deductible, your assets grow tax-free, but when you make distributions later in life it is taxed as ordinary income.

Investors should realize that it’s not necessarily a matter of weighing the pros and cons of a Traditional IRA versus a Roth IRA, and then choosing the one that’s right for you. Investors can do both, or some combination of the two.

If you don’t qualify for a Roth IRA, but are concerned about your retirement planning, have you considered rethinking your retirement strategy with a goals-based investment plan?

Should I Open a Roth IRA? How Do I Do It?

Whether opening a Roth IRA makes sense for you (or not) depends on your income level and your unique financial situation, so we cannot answer that question without more specific information. What we can do, however, is to give you personalized advice based on your financial situation, your needs, and your goals if you just answer a few questions about your financial picture and lifestyle requirements.

If we determine together that a Roth IRA makes sense for you, then we can certainly help you take the next steps to opening a Roth, funding it, and investing it for the long-term. Ask us questions and learn more by reaching out to us directly at 1-800-541-7774.


The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice, either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.

This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information presented is general information that does not take into account your individual circumstances, financial situation or needs, nor does it present a personalized recommendation to you. The information and opinions contained in this material are derived from sources deemed reliable, are not all-inclusive and are not guaranteed as to accuracy.

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