7 Things You Need to Know About Roth IRAs to Maximize Tax-Free Income

Ready For Retirement

James Conole, CFP®

Investment Planning, Bonds, Education, Stocks, Cash, Business, Dividend Investing, Retirement Planning, Retirement, Investing, Tax Planning

5 • 706 Ratings

🗓️ 12 November 2024

⏱️ 17 minutes

🔗️ Recording | iTunes | RSS

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Summary

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 Only earnings are subject to penalties if withdrawn early.The Five-Year Rule: To withdraw earnings tax-free, the Roth IRA must be held f...

Transcript

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0:00.0	Many of us know the benefits of Roth IRA at least at a high level. We know that they can create
0:03.7	tax-free income of some type. However, to truly utilize Roth IRAs to their fullest extent,
0:09.2	it's important that we know all of the different nuances to Roth IRAs so we can most effectively
0:13.3	use them in our planning. That's why today I'm going to go over seven things you need to know
0:17.0	about Roth IRAs to ensure you're getting the most out of them when it comes to your retirement
0:20.7	planning.
0:23.5	This is another episode of Ready for Retirement.
0:26.0	I'm your host, James Cannell, and I'm here to teach you how to get the most of the life
0:29.2	with your money.
0:30.3	And now, on to the episode.
0:33.8	To start, let's define what a Roth IRA is.
0:36.7	A Roth IRA is an individual retirement account or individual retirement arrangement. And unlike a traditional IRA, where any money that you put in is considered pre-tax, meaning you get a tax deferral on those contributions. But then when you pull that money out, typically in retirement, you pay taxes on it. It's a complete opposite. With a Roth IRA, any contributions
0:54.4	that you put in, you don't get any tax break for. However, all of the growth from then on,
0:58.3	assuming you're making qualified distributions in the future, the growth is both tax-free,
1:02.1	as well as the distributions are tax-free as well. So, what do you need to know about Roth
1:06.8	IRAs? Well, number one, the first thing that you need to know is how much can you put into it, but that's just the basics. From there, we're going to go over seven other different things you need
1:14.9	to know to ensure you're getting the most out of Roth IRAs when it comes to utilizing them
1:18.8	effectively in your planning. So for 2024, and these numbers will stay the same for 2025, you can
1:23.7	put up to $7,000 per individual into a Roth IRA or traditional IRA. Now, that $7,000 limit is
1:30.8	cumulative. So hypothetically, you could put $4,000 into a Roth and $3,000 into an IRA. You can put $7,000 into one
1:36.9	and nothing in the other, but that $7,000 is a cap between the two. If you are 50 years old or older,
1:42.3	you can make an additional $1,000 catch-up contribution for a total of $8,000. So that's a starting point. That's what most
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