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Let's Explore the Roth IRA

Updated: Aug 4, 2021


Who doesn't think about retirement from time to time? The wise business owner takes advantage of tax law and invests in a way to prepare for the future. Whether that date is near approaching or in the far distance, the Roth IRA can be a valuable tool.


The Roth IRA was established in 1997 and named after former Delaware Senator William Roth. Contributions must be made from earnings from a job or a business, not from investment or real estate gains. You can contribute up to $6,000 a year, except those aged 50 and older can contribute up to $7,000 per year, if you meet the income guidelines Married couples must make $208,000 or less, and singles limit is $140,000. as of 2021.


The Roth IRA is a retirement account that accepts earnings that have been taxed, and allows the funds to grow tax free, and to be taken out tax free. There are some guidelines that must be followed. First, the IRA earnings must not be touched for five years from opening date. After that all Roth IRA funds are available to take out for anyone age 59 1/2 or older with NO TAXES DUE. The funds can be taken out before that age, and may be subject to income lax and penalty, depending on the circumstances.


Withdrawals prior to age 59 1/2 would be subject to income tax, but not the 10% penalty in these situations:

  • Less than or equal to $10,000 for first home purchase

  • Less than or equal to $5,000 for birth or adoption of a child

  • For qualified educational expenses

  • For unreimbursed medical expenses exceeding 7.5% of AGI

  • For health insurance premiums if unemployed

  • Due to disability

  • Substantially equal payments at least annually

  • Due to IRS levy

  • Made while a reservist, as defined by the IRS

Consider how you might benefit in the future with retirement funds that were allowed to grow tax free and have already been subject to income tax. More articles to come on this subject!


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