Once you understand what a Roth IRA is, it’s time to dig into how contributions work. Learn how specific rules and limitations could affect you and your money.
While the tax benefits of a Roth IRA are generous (your money grows tax-free, and you can withdraw it tax-free after age 59 ½, once you’ve had the account for at least five years), there are specific limitations to consider.
Here are four things to keep in mind about Roth IRA contribution limits and rules.
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Withdrawals from an IRA prior to age 59½ may be subject to a 10% Federal tax penalty. For a Roth IRA, tax-free withdrawals of earnings are permitted five years after first contribution creating account. Earnings withdrawn prior to that may be subject to ordinary income taxes and a 10% Federal tax penalty.
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