When you get a deduction for a contribution to an IRA – that is a benefit. The benefit is a reduction in income. When you receive this deduction, the tax has been deferred and becomes taxable when it is distributed later.

Contributions to a ROTH IRA are nondeductible. There is no deduction on your 1040 to reduce income. No benefit in- then no taxes out, because the contributions have already been taxed. Otherwise, the contribution would be taxed twice. The major reason for contributing to a ROTH IRA is that it’s tax-free when taken out, including the accumulated earnings.

Similar to a regular IRA, there are income limits and contribution limits. The contributions are the same as for a regular IRA – $5500 for per taxpayer and $6500 for those over 50 years of age. Unlike a regular IRA there is no age limit. You can contribute after reaching 70 1/2, and can rollover a regular IRA to a ROTH IRA.

Qualified distributions are not included in gross income and are not subject to an early withdrawal penalty of 10%. One of the qualifications is that the contributions must satisfy the 5-year holding period. Establishing a ROTH IRA is a long-term strategic frugal financing option to a regular IRA.

There are many benefits and nuances that need to be understood before establishing a ROTH IRA. Therefore, speak to a professional for advice.

Brenda Hendrickson
AFSP Record of Completion by IRS