Roth

Roth is a term that is often associated with a type of retirement savings account in the United States, known as a Roth IRA. The Roth IRA was established by the Taxpayer Relief Act of 1997 and is named after its chief legislative sponsor, Senator William V. Roth Jr..

Overview

A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

Contributions

Contributions to a Roth IRA are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William Roth, the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.

Withdrawals

Withdrawals from a Roth IRA can be made tax and penalty free if the following conditions are met: The account has been open for at least five years, and the withdrawal is: made because the account holder is disabled, made by the estate or beneficiary of the account holder, or used for a qualified first-time home purchase.

Conversion from a Traditional IRA to a Roth IRA

In some cases, it is possible to convert a Traditional IRA to a Roth IRA. This is known as a "Roth Conversion". The conversion is treated as a taxable event and the account holder must pay income tax on the amount of the conversion.

Differences between a Roth IRA and a Traditional IRA

The primary difference between a Roth IRA and a Traditional IRA is how they are taxed. Traditional IRA contributions are tax-deductible, while Roth IRA contributions are not. However, withdrawals from a Traditional IRA are taxed, while withdrawals from a Roth IRA are not.

See also

• Individual retirement account
• 401(k)
• Retirement savings account
• Taxation in the United States

Roth Resources
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