What Is a Roth IRA?

    A Roth IRA is a type of individual retirement account (IRA) where you contribute after-tax dollars to grow your retirement savings. Qualified future withdrawals are tax-free since you pay taxes on the money in your account. This is the main distinction from traditional IRAs, which have pre-taxed contributions that may be deductible if the taxpayer meets certain criteria. 

    Once you reach age 59½, you can withdraw funds from your Roth IRA if it has been open for at least five years. However, withdrawals are not required, and you can continue contributing to your Roth IRA after 70½, unlike a traditional IRA. 

    Roth IRA Benefits

    A Roth IRA offers several advantages compared to other types of retirement accounts: 

    • Roth IRAs have no age restrictions. You can contribute to your plan as long as you would like, provided you have a qualifying earned income. 
    • Roth IRAs come with tax advantages. Contributions and investment gains grow tax-free, and withdrawals are tax and penalty-free after age 59½. If you pass your Roth IRA on to family members, their withdrawals are also tax-free. 
    • Roth IRAs do not require withdrawals. Unlike other retirement savings vehicles, minimum distributions are not mandatory with a Roth IRA.  
    • Roth IRAs are widely available. Many banks, investment companies, and brick-and-mortar businesses offer them. EP Wealth advisors always have your best interests in mind and only recommend products that reflect your savings needs and goals. 
    • Roth IRAs offer many funding options. You can add money to your Roth IRA with regular contributions, spousal contributions, transfers, rollovers, and conversions. 

    Income Restrictions for Roth IRAs

    While Roth IRAs can be a valuable retirement savings tool, they do come with an important caveat. The IRS sets contribution limits for each year based on your tax filing status and income. For example, in 2024, your modified adjusted gross income (MAGI) must be under $146,000 for single filers or under $230,000 for joint filers to make a full Roth IRA contribution for the year--$7,000 or $8,000 for individuals ages 50 and up. 

     

    High earners may still be able to make indirect contributions to a Roth IRA by contributing to a traditional IRA and converting that balance to a Roth IRA. This is known as a backdoor Roth IRA. Thanks to a loophole in the tax code, it works because the MAGI threshold does not apply to conversions. 

    Roth IRA contribution limits may increase from year to year. Your EP Wealth advisor will update you on these changes and determine if a conversion makes sense.  

    Why Should You Consider a Roth IRA?

    A Roth IRA is a good solution if you anticipate being in a higher tax bracket when you retire because of the tax-free withdrawals. However, you must not exceed the income requirements. Roth IRAs are less restrictive than other retirement plans, allowing you to take money out early or continue contributing as long as you like.

    When planning for retirement, it’s essential to consider the risks, benefits, and alternatives of different plans. A consultation with an EP Wealth advisor may help you determine the best retirement savings vehicles to support your future financial needs and goals. Find an advisor near you to get started today.

    DISCLOSURES

    • EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability
    • Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
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    • Hiring a qualified advisor and/or financial planner does not guarantee investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
    • The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.  
    • All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. The risk of loss can never be eliminated even if working with a professional. 
    • Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
    • The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors.  Before making any decision or taking any action, you should consult with a professional tax advisor who has been provided with all pertinent facts relevant to your situation. EP Wealth Advisors is not in the business of providing legal or tax advice. Please consult with a CPA, tax professional, and/or attorney regarding your specific situation.

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