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Are Roth IRAs Really Tax Free?

a Roth IRA is an important part of a

retirement plan portfolio in today's

video we're gonna discuss what you need

to know about Roth IRAs to boost your

retirement and minimize taxes stay tuned

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before we get into Roth IRAs be sure to

hit the subscribe button I want to make

sure that you don't miss any of my

videos on personal finance and investing

now let's get into it

unlike traditional IRAs 401 KS and 403

B's Roth IRAs are tax-free when you make

withdrawals in retirement now let's look

at a comparison between Roth IRAs and

traditional IRAs I want to also mention

that I've written extensively on the

difference between tax deferred and

tax-free on my website I'll be sure to

leave a link to it in the description

area of this video but let's talk about

the difference between Roth IRAs and

traditional IRAs with traditional IRAs

you make a contribution and then when

you go to do your taxes you reduce the

amount you contributed to the IRA from

your taxable income this is an example

of tax deferral so you're putting money

into a traditional IRA and each year you

reduce your taxable amount by the amount

that you've contributed to the

traditional IRA over time the balance

grows you have investment earnings

reinvested dividends etc and the account

balance grows you have return on

investment well years later down the

road when you retire and you begin

making withdrawals in retirement those

amounts in your traditional IRA have

never been taxed so when you take money

out the IRS views that as income all of

it so let's say you started your

retirement account your traditional IRA

in your early 30s and you've been

putting money in it for over 20 years

over 30 years that account balance has

grown significantly so when you take

money out all of it will be considered

taxable income that's often a rude

awakening for those who are in

retirement and all of a sudden finding

out that

all those amounts that they have saved

now that they're using it is all taxable

now in contrast let's look at Roth IRAs

Roth IRAs are funded with after-tax

dollars that means when you make a

contribution you don't get to deduct the

amount that you contributed off of your

taxes all the money that goes into the

Roth IRA is after-tax however when you

put the money in the Roth IRA and you

invest it over time you have investment

earnings that reinvest on itself your

portfolio grows and then when you're in

retirement and you make withdrawals all

of those withdrawals are tax-free

no tax on the withdrawals that you make

from a Roth IRA that's an incredibly

powerful thing to have in your

retirement savings toolkit the ability

to withdraw money tax-free Roth IRAs

deserve a close look there our

contribution limits to Roth IRAs just

the same as there are contribution

limits to traditional IRAs the IRS sets

these limits in 2019 you can contribute

up to $6,000 per year in a Roth IRA if

you're age 50 or older you can

contribute $7,000 per year so it's

important to note that there are income

limitations for those wanting to

contribute to Roth IRAs you don't want

to run afoul of these rules because you

don't want to over contribute to the

Roth IRA and get penalized by the IRS

we're going to discuss that in more

detail later unlike traditional IRAs

Roth IRAs have no required minimum

distributions required minimum

distributions or RMDs are what you have

to take from traditional IRAs when you

reach age 70 and a half Roth IRAs aren't

subject to RMD rules what does that mean

it means that you can continue to have

your money invested in a Roth IRA long

after age 70 and a half if that is

something that's beneficial for your

situation it's important to note that as

with most rules there are exceptions

when it comes to required minimum

distributions and Roth IRAs

if

you have a Roth IRA and it's your own

and you are over age 70 and a half

you're not subject to our MDS or

required minimum distributions and if

you inherit a Roth IRA from your spouse

you are also exempt from the required

minimum distribution rules however if

you inherit a Roth IRA from anyone other

than your spouse you will be subject to

Roth IRA required minimum distributions

I've written much more extensively about

this on my website and I'll be sure to

leave a link in the description to this

video as mentioned earlier in the video

there are income limitations to being

eligible to contribute to a Roth IRA in

the first place we're not going to dive

into the exact dollar amounts because

they vary depending on whether you're

married filing jointly or single or have

another tax filing status I will be sure

to leave a link to my website that goes

into much more detail about these income

limitations but what you want to make

sure you understand is that you may be

ineligible to contribute to a Roth IRA

or at least phased out of being able to

make a full six thousand or seven

thousand dollar contribution to the Roth

IRA so what you want to make sure you do

is check those amounts make sure that

you're eligible now the main takeaway of

this is to contribute to a Roth IRA

while you can a lot of people come to

find out that a Roth IRA could be a

powerful tool for them as a retirement

savings tool but they put it off and for

whatever reason they delay making Roth

IRA contributions well fast forward five

years and you finally get to that point

where you feel like okay I want to make

Roth IRA contributions you may find out

that you're no longer eligible because

your income has risen over the past five

years and you're now in the Roth IRA

phase-out range where your contributions

could be limited or excluded entirely so

make sure to keep up with the income

limits applicable to Roth IRAs Roth IRAs

are an important part of a serious

retirement say

toolkit not only do you get the benefit

of boosting your retirement but you also

get the added benefit of tax savings

when you retire don't neglect the

powerful benefits of a Roth IRA you

won't regret it if you found this video

helpful be sure to hit the like button

and most importantly please be sure to

subscribe I want to make sure that you

don't miss any of my videos on personal

finance and investing thanks for

watching

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