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What Is a Roth IRA?


By: St. Mary's CU

What Is a Roth IRA?

If you’re focused on retirement, you’ve likely heard that a Roth IRA is an excellent way to save. While these accounts provide a great opportunity to ensure financial comfort after leaving the workforce, their complexities can be difficult to understand. Fortunately, St. Mary’s Credit Union members in Middlesex, Worcester, Norfolk, and Suffolk Counties have a trusted team to guide them through every step. Here, we’ll take a closer look at Roth IRA savings or certificate account to help determine if they’re the right choice for you.

An Introduction to the Roth IRA

There are several types of individual retirement accounts (IRAs), but the most common include traditional and Roth. Both offer tax advantages, and one important difference is when you’ll be able to enjoy them. While money contributed to a traditional IRA is tax-free at the time of deposit, you’ll pay taxes upfront on any Roth IRA contributions. However, that means all withdrawals are 100% tax-free, maximizing your benefit at the time of retirement.

Some restrictions apply for who can open a Roth IRA, and there are limits on maximum annual contributions. For 2021, account holders may contribute up to $6,000 if under 50 years old or $7,000 if age 50 and older. Your Roth IRA funds will be invested in various ways. Any profits from these investments, along with interest, will be added to your account, growing your savings over time.

Who is Eligible for a Roth IRA and What Rules Apply?

Anyone with earned income, also called taxable compensation, may open a Roth IRA savings or certificate account. Income limits also apply, and your modified adjusted gross income (MAGI) must be $140,000 or lower for single tax filers and $208,000 or lower for those married filing jointly. To determine your MAGI, check your tax return.

If you choose a Roth IRA, it’s important to be aware of the rules governing these accounts. These include:

  • Principal contributions, the money you contribute directly, may be withdrawn at any time without penalty, subject to some conditions
  • You may begin withdrawing funds at age 59 1/2 without penalty
  • Early withdrawals on interest are subject to penalties
  • There is no age limit for contributions - but you must have taxable compensation below certain amounts

In some cases, you may be eligible to make an early withdrawal without penalty for medical expenses, adopting a child, purchasing a first home, and more. Consult with a St. Mary’s Credit Union advisor for further information.

Why Choose a Roth IRA?

Many of our members choose Roth IRAs because of their simple contribution rules, post-retirement tax benefits, and flexible withdrawal policies. However, there are many other reasons to opt for a Roth IRA, including:

  • No Required Minimum Distributions: Traditional IRAs require mandatory distributions at age 72, but Roth IRAs allow you to withdraw money only when needed.
  • More Options: You may contribute to a Roth IRA and a work-sponsored 401(k) simultaneously to maximize savings.
  • Broad Timing: Contributions are allowed until the previous year’s tax deadline, giving you more time to save.
  • Flexible Contributions: Account holders can make contributions in any amount, from small monthly deposits to annual lump sums.

Open your Roth IRA Money Market Account Today

It’s never too soon – or too late – to save for retirement. At St. Mary’s Credit Union, our dedicated team of financial experts can help you explore Roth IRAs and other retirement savings options to help you find the right solutions for your post-retirement goals. To learn more, visit a nearby location today, contact us online or call 508-490-8000 or 866-585-7628 to speak with a representative.