Roth IRA

A Roth IRA is an individual retirement account (IRA) in the United States. A Roth IRA may invest in a variety of options such as stocks or mutual funds. As with all IRAs, there are specific elegibility and filing status requirements mandated by the U.S. Internal Revenue Service. A Roth IRA's main advantage is its tax structure. Contributions are made post-tax; earnings and withdrawals are federal income tax free. In contrast, contributions to a traditional IRA are made pre-tax and earnings are tax free, but withdrawals are subject to tax. Another advantage of the Roth IRA is that there are fewer restrictions on withdrawals than with a traditional IRA.

Income limits

Like many tools that offer tax advantages, the IRS has limited who can contribute. The Roth IRA is only available to people whose income is below a certain level:

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• $150,000 - $160,000 — Married Filing Jointly
• $0 - $10,000 — Married Filing Separately (and you lived with your spouse at any time during the year)
• $95,000 - $110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse)

The lower number represents the point at which the taxpayer is no longer allowed to contribute the maximum yearly contribution. The upper number is the point as of which the taxpayer is no longer allowed to contribute at all. Note that people who are married and living together, but who file separately, are only allowed to contribute a relatively small amount.

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