A Roth IRA is a type of tax-advantaged retirement account that lets you withdraw funds tax-free. Contributions to Roth IRAs are limited annually, with IRA holders 50 years of age or older allowed to contribute more than those younger; this additional contribution is dubbed a "catch-up" contribution by the Internal Revenue Service. Roth IRAs offer more flexibility on withdrawals than traditional IRAs, but withdrawals are subject to certain age-related rules.
Roth IRA Basics
Roth IRAs differ from other common types of retirement accounts like 401(k) plans and traditional IRAs in that your contributions are not tax deductible. Instead, you have to make contributions with money that has already been subject to income tax, but you generally don't have to pay income tax on withdrawals. Since you have to fund your Roth IRA with after-tax income, you can withdraw your contributions at any time without penalty, regardless of your age.
A withdrawal from an IRA made before the age of 59 1/2 is considered an "early distribution." While you can take your Roth IRA contributions out at any time, you are not afforded the same freedom for investment earnings like capital gains, dividends and interest. Investment earnings you take in an early distribution are subject to a 10-percent early withdrawal penalty and normal taxes.
The early distribution penalty does not apply if you withdraw funds in certain special cases. You don't face an early withdrawal penalty if you withdraw funds due to disability, to pay college expenses for yourself, a spouse or a child or to pay medical expenses that exceed 7.5 percent of your adjusted gross income. You can also withdraw up to $10,000 to buy or build a first home without facing the early distribution penalty.
Required Minimum Distributions
Required minimum distributions are withdrawals that the IRS forces you to make starting at age 70 1/2 if you own certain types of accounts like a traditional IRA or 401(k). Roth IRAs are not subject to RMDs, which means you are free to keep money in your Roth as long as you want. You can even continue contributing money to your Roth after age 70 1/2 as long as you have earned income.
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