Broker Check

Roth IRA

Tax-Free Retirement Income

Tax-Free Retirement Income

Under current tax law, Roth IRA contributions and earnings may be withdrawn tax-free after 5 years and age 59 1/2.

Required Minimum Distributions are NOT required from Roth IRAs.

Contributions may continue to be made after age 70 1/2, as long as you have earned income.

Created by the Taxpayer Relief Act of 1997 and named for Senator William Roth, Roth IRAs provide a significant retirement income benefit by providing income free from income tax. 


Contributory Roth IRA Contributions

Contributions may be made to a Roth IRA as long as you have earned income, but may be limited based on your filing status and income.  The IRS publishes the annual Roth IRA contributions and earnings limitations each year.    The amount of contributions may be split between Roth IRA and Traditional IRA contributions, but may not exceed the overall limitation on Roth or IRA contributions.

Contribution Limits

Traditional IRA to Roth IRA Conversions

You may convert a Traditional IRA to a Roth, in whole or in part.  The amount converted is considered taxable income in the year of conversion.  The 10% penalty tax does not apply.  There are no limitations on the amount you may convert.

The concept of an IRA to Roth conversion is paying the tax in the present on the current balance may allow you to enjoy future tax-free income in the future on a potentially larger balance.

401(k), 457(b), or 403(b) Plan Rollovers To Roth IRA

Your funds in employer sponsored plans, like 401(k), 457(b), 403(b) may be rolled over to a Designed Roth Account in the same plan, if the plan has a Roth IRAs and permits such rollovers.  Plan provisions may vary, your Summary Plan Description will contain this information, or ask your Plan Representative.    Such conversions may occur at any time, regardless of age, if the funds are staying in the same plan.

When you are eligible to distribute  funds from employer sponsored plans, like 401(k), 457(b), or 403(b) plans may be rolled to an Individual Roth IRA account.  

Both types of transactions will make the amount converted to be reported as taxable income.  You will likely have to pay income tax on the amount of conversion.  The 10% tax penalty does not apply to conversions.

Our Advisors may help determine whether a rollover is suitable for you.

Roth IRA Investments

Roth contributions may be invested in stocks, mutual funds, and similar types of investments, held by custodians, banks or invested in annuity contracts.    You may choose your own investment risk level.  Knox Financial Services offers advisory services for Roth IRAs, where we work with you to find investments that match your time horizon, attitude about investing, and available funds.

Withdrawals

Under current tax law, you may withdraw your cumulative contributions (less prior withdrawals) from a Roth IRA at any time, without income tax.  Earnings will be tax-free if you have: 

  • Held the account for 5 years, and
  • are:
    • age 59 1/2 or older;
    • disabled; or
    • deceased

Tax-free distributions are available after 5 years, regardless of age, of up to $10,000 to buy your first home.

Earnings distributed without the exceptions above are taxed as ordinary income, along with a 10% IRS imposed tax penalty, unless an exception applies.  

Pay Tax Now Or Later

Contributions to a Roth IRA are made with after-tax dollars or take-home pay.  The funds used to purchase the Roth IRA have already been taxed, the taxes are paid in the present.  Under current tax law, future qualified distributions are income-tax free.

With a Traditional IRA, contributions help you reduce current income tax and are deferred until withdrawn, while you pay the tax in the future.  

Flexibility Before Retirement

A Roth IRA may be appealing for those who wish to save for retirement, but also desire liquidity prior to age 59 1/2.

Contributions to a Roth IRA may be distributed at any time and are returned tax-free, regardless of age.  For example, if you contribute $6,000 each year to a Roth IRA for 5 years, you retain liquidity of the cumulative $30,000 contributions.  Withdrawals of contributions will reduce the net contribution available for withdrawal.  Please keep in mind that earnings/gains must be kept in the Roth IRA account until age 59 1/2, disability or death to be received tax-free.  In addition, up to $10,000 may distributed from a Roth IRA for purchase of your first home, regardless of age.


Roth IRA Or Traditional IRA

Is A Roth IRA better than a Traditional IRA?  It depends on your situation.  Read more by clicking The Great Debate below.

The Great Debate
Our Advisors Will Help

Our Advisors Will Help

We work with you to evaluate what type of retirement savings strategy or combination of strategies may be the best fit for your situation. 

Our advisors have experience with simple to very complex financial situations and the available tax-qualified retirement programs available that may work well for your situation.

Let's talk about what makes the most sense for your situation.

Plan Well!  Invest Efficiently!  Relax!

 

Let's Talk