Roth IRA

A Roth individual retirement account (IRA) can help you save for retirement with after-tax dollars that offer the potential for tax-free income.

What is a Roth IRA?

A Roth individual retirement account (IRA) is a tax-advantaged account designed specifically for retirement savings. Unlike traditional IRAs, which are typically funded with pretax dollars, a Roth IRA is designed to help you save for retirement with after-tax contributions that offer the potential for tax-free income in retirement.

Once you open and fund a Roth IRA, you can invest your assets in a variety of investments, including:

These choices give you the opportunity to diversify your savings with an appropriate mix to help meet your retirement objectives.

Benefits of a Roth IRA

Roth IRAs have unique benefits that can help you save for your retirement goals. These benefits include:

  • Access: Although Roth IRAs are designed for retirement savings, you can access contributions at any time without taxes or penalty.
  • Tax-free income: A Roth IRA generally provides tax-free income in retirement, giving you greater flexibility to manage your taxes in retirement.
  • No required minimum distributions (RMDs): Unlike traditional IRAs, Roth IRAs do not have RMDs, allowing your assets more time to grow tax free.
  • Tax-free asset for heirs: A Roth IRA won't create a tax burden for your heirs.

Roth IRA contributions

Your contributions to a Roth IRA are made with after-tax dollars, since you can't deduct them from your income taxes. In exchange for paying taxes today, your future qualified withdrawals are tax free, giving you greater flexibility to manage your taxes in retirement. 

If you’re eligible, you can contribute up to 100% of your taxable compensation or the annual contribution limit, whichever is lower. Contribution limits are set every year by the Internal Revenue Service (IRS) and are tied to cost-of-living adjustments. Keep in mind your total contribution can be no more than the annual limit for all your traditional and Roth IRAs combined.

See IRA contribution limits for more details.

Roth IRA eligibility

To be eligible to contribute to a Roth IRA, you must have taxable compensation and your modified adjusted gross income (MAGI) must be below a certain threshold. MAGI limits vary, depending on your tax filing status.

If your MAGI exceeds the limits, you may still be able to contribute to a Roth IRA through a backdoor Roth contribution.

IRA contributions must be made in cash and can be made at any time during the year up to the tax-filing deadline, not including extensions (generally April 15).

In addition to funding your own IRA, you can also fund an IRA on behalf of:

  • Your spouse. If your spouse has no taxable compensation, you may be able to contribute up to the maximum IRS annual contribution limit for that account, too, as long as you file a joint tax return.
  • Your child or grandchild. You can fund a Roth IRA on behalf of someone else, including a minor, as long as the owner is eligible to contribute.

While Roth IRA contributions aren’t eligible for a tax deduction, eligible taxpayers can receive the Saver’s Credit for their Roth IRA contributions. The Saver’s Credit is a nonrefundable tax credit of up to $1,000 for single filers ($2,000 for joint filers) that can help lower your tax bill.

Roth IRA frequently asked questions

We can help with your Roth IRA needs

If you’re considering opening a Roth IRA, talk to us. Our financial advisors will work with you to help determine what's important to you now and in the future. Together, we’ll review your retirement options and design a personalized retirement strategy based on your investment goals. Contact us for a no-obligation consultation today.

Important information:

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.