Friday, 18 October 2019

What Is a Roth IRA Account and How Does It Work?

Today we are talking about the Roth IRA from top to bottom. Roth IRA is just a title that is given to an investment account. By calling it a Roth IRA, the IRS assumes that you are going to follow the rules that they have put forward for the Roth IRA.

Think Of Roth IRA As a House

Roth IRA on its own is not really much, it's just an account, there is nothing inside of it. Think of it as a house, you can have a house with no kitchen or flooring or nothing, just walls and a ceiling. We have to put stuff into that house to help create some kind of a value, so in a Roth IRA you can basically have any type of investment inside of the account 

  • Stock
  • Bonds
  • Mutual Funds
  • Gold
  • Real Estate

You are much unlimited as far as the things that you can invest in a Roth IRA. Think of this as furnishing the house, when you add a kitchen, add some floors, add a sofa, TV. Now, all of a sudden you have the potential for something that has real value.

How Much Can You Put In

Well, in a Roth IRA, for 2019 you could put in $5,500 if you are under the age of 50, if you are 50 or over, you can put in $6,500 and you don't want to go over that number or you are going to have to pay a 6% excise tax.

In a Roth IRA, You Are Not Allowed To Contribute If You Make Too Much

If you are single and you make $132,000 or more or if you are married and you make $194,000 as a combined couple, then you really phase out from contributing to a Roth IRA. If you make little money then you are probably not really concerned with investing, but if you are, then here are the rules.

Roth IRA Rules

If you make less than $5,500 which is the max contribution amount, then you can only contribute however much you make, for example, if you only make $3,000 then that is all you could contribute, that would be your limit. If you are already the age of 50 and you made less than $6,500 then whatever it is that you made, that is what you can contribute.

Do You Have A Retirement Plan That Work?

Such as a 401k then you could still have a Roth IRA and contribute to it, you can make contributions at any age and you are never actually required to take money out of it. In a traditional IRA that is another type of retirement account, you are actually forced to start taking money out when you are 70 ½. If you have a spouse that is currently not working, they can still open a Roth IRA but the IRS is going to use the working spouses' taxes to determine limitations for contributions.


You ideally want to leave your money in a Roth IRA until you are retired, that is the point of the account, but if something comes up as long as it's been more than 5 years from the date of your first contribution, you can take out any money without paying a penalty. Also, you could take money out without paying a penalty if you happen to buy your first home, maybe you have college expenses, you are going back to school and a few other things like that.

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