Personal Insights

What is a Roth IRA?

If you’re wondering how to open a Roth IRA, start here.

Roth IRAs are a great way for people to save for retirement, and they’re becoming even more popular, especially with younger investors. It’s easy to see why when you consider the tax advantages of this type of retirement account. Here, we’ll take a look at the important details you need to know, from Roth IRA contribution limits to Roth IRA eligibility and more.

The basics of Roth IRAs

Let’s start with the basics by looking at Roth IRAs vs. traditional IRAs. An IRA is an individual retirement account, and both Roth IRAs and traditional IRAs are known as “tax-advantaged.”

The biggest difference between the two is that with traditional IRAs, you can possibly make tax-deductible contributions on the front end, and you pay taxes when you take distributions. With Roth IRAs, it’s the opposite: You’re taxed on the front end when you contribute to your account, but you don’t pay taxes when you take distributions.

How much can you put in a Roth IRA?

Let’s take a look at the details of Roth IRA contribution limits. If you’re under the age of 50 and meet specific income restrictions, your max contribution to a Roth IRA is $7,000 for 2024. Investors 50 and older can contribute $8,000 in 2024. There are Roth IRA income limits to keep in mind. The maximum income limit for a Roth IRA in 2024 is $161,000 for single filers ($240,000 for couples), so if you make up to that amount you can contribute a reduced amount for 2024. People who earn anything more than that cannot contribute to a Roth IRA. Talk to a tax professional to make sure you are within the guidelines.

How does a Roth IRA grow?

When it comes to Roth IRA return rates, you should keep in mind that these are investment accounts, so there are risks associated with any purchase of stocks or bonds. Inside the account, your portfolio of investments should be tailored to suit your risk tolerance and financial objectives. Take, just as an example, a Roth IRA that grows at an average rate of 7% to 10% each year. If it grows 7% a year and you start contributing the current maximum yearly amount at age 35 and keep up with it each year, by the time you’re 65, your Roth IRA could potentially be worth $657,000. Incredible, right?

How do Roth IRA distributions work?

Roth IRA distribution rules are fairly straightforward. Unlike with traditional IRAs, you don’t have to take mandatory withdrawals beginning with the year you turn age 73. You simply withdraw as needed in retirement—and don’t forget, qualified withdrawals are tax-free! Keep in mind that if you withdraw before age 59½, you’ll have to pay a 10% early-withdrawal penalty.

Other Roth IRA rules to consider include how to roll over a 401(k) to a Roth IRA. If you’ve been contributing to your 401(k) and you want to put it in a Roth IRA, you will have to pay taxes on the previously untaxed contributions that you made to your 401(k) account. There is no limit to the amount that you can roll over.

Setting up a Roth IRA is easy, and it can offer you financial security in your retirement. If you’re interested in opening an IRA, visit your nearest Regions Bank to learn more.

Three things to do

1. Learn more about investing, including the key concepts of allocation and diversification.
2. Consider how an IRA account would factor into your retirement plan.
3. Visit a Regions Branch and discuss the benefits of a Roth IRA today.