7 Things You Need to Know About Roth IRAs to Maximize Tax-Free Income
- 7 Things You Need to Know About Roth IRAs to Maximize Tax-Free Income James Conole, CFP® 17:00
Roth IRAs offer great tax-free income benefits, but to make the most of them in Retirement, here are seven things you need to know:
- Contribution Limits: In 2024, you can contribute up to $7,000 annually ($8,000 if 50+), across both Roth and traditional IRAs.
- Access to Contributions: You can withdraw your contributions at any time, tax-free and penalty-free. Only earnings are subject to penalties if withdrawn early.
- The Five-Year Rule: To withdraw earnings tax-free, the Roth IRA must be held for at least five years.
- Income Limits & Backdoor Roths: High earners may not be able to contribute directly, but a backdoor Roth strategy can help. Consult a financial advisor for guidance.
- No RMDs: Roth IRAs don’t require minimum distributions, allowing your funds to grow as long as you want.
- No Impact on Social Security: Roth IRA withdrawals won’t count toward your provisional income, potentially lowering your Social Security tax.
- No Medicare Surcharge: Roth withdrawals don’t affect your adjusted gross income, helping you avoid higher Medicare premiums.
By understanding the points above, you can use a Roth IRA to manage taxes and increase flexibility in your retirement.
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Timestamps:
0:00 – What is a Roth IRA?
1:38 – Free withdrawals
3:15 – The 5-year rule
4:49 – Income thresholds
6:01 – Backdoor Roth contribution
8:18 – No RMDs
9:26 – Not provisional income
12:10 – Not part of IRMA calculations
13:06 – Income requirement nuances
14:49 – Wrap-up
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