Test Your Knowledge of Roth IRAs

There are two main types of individual retirement accounts: Roth IRAs and traditional IRAs. Here is an opportunity to see how much you know about Roth IRAs and the tax benefits they offer.

True or False: Your Roth IRA contributions can be withdrawn tax-free at any time.

True. The money you contribute to a Roth IRA can be withdrawn tax-free at any time.

True or False: Investment earnings can generally be withdrawn tax-free in retirement.

True. Investment earnings can be withdrawn tax-free after you reach the age 59 ½ and the Roth IRA has been open for at least 5 years. Earnings withdrawn prior to this age will generally be subject to ordinary income tax, as well as a 10% early withdrawal tax penalty unless an exception to the penalty applies.

True or False: Anyone can contribute to a Roth IRA.

False. Your income must be under certain limits for you to contribute new money to a Roth IRA. For 2021, your modified adjusted gross income must be less than $140,000 if you are single, $208,000 if you are married and file jointly, or $10,000 if you are married, file separately, and live with your spouse during the year. Plus, you (or your spouse if you are married and file jointly) must have taxable compensation, such as wages, to contribute to an IRA.

True or False: Anyone can convert a traditional IRA to a Roth IRA.

True. No matter how high your income, you can convert your traditional IRA to a Roth IRA. Keep in mind that you’ll need to pay income tax that year on the amount you convert that was not taxed previously.

True or False: Roth IRA account owners do not have to take RMDs.

True. You do not have to take required minimum distributions (RMDs) at any ag if you are the account owner.

Please consult with us for advice about saving for retirement. With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty, we look for facts. We call our approach evidence-based investing. Call us today at 802-878-2731 to schedule a strategy session and begin building your road map to financial success.

Article published in March 2021 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.