Roth IRA

How is a Roth IRA Different?

Think of a Roth as the mirror image of a regular IRA or 401(k): Instead of collecting a tax benefit up front, you get your break at the back end. When you fund a traditional IRA, you can take an immediate tax deduction on your contributions, but you then pay income taxes when you pull your money out. When you open a Roth IRA you’re not entitled to a deduction, but you can withdraw all your money, including earnings, tax-free. The Roth 401(k) works the same way.

Mathematically, there’s no difference between getting a tax break at the beginning or end. All else being equal, you end up in the same place whether you pay taxes at the outset or in retirement.

Roth IRA

Roth IRA is an individual retirement arrangement that, except as explained below, is subject to the rules that apply to a traditional IRA. It can be either an account or an annuity. Individual retirement accounts and annuities are described in Traditional IRAs.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP-IRA nor SIMPLE IRA can be designated as a Roth IRA. Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (defined in Publication 590) are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.

Details about Roth IRAs are contained in Publication 590, Individual Retirement Arrangements (IRAs) and include:

• Setting up your Roth IRA
• Contributions to your Roth IRA; and
• Distributions (withdrawals) from your Roth IRA.

Investing basics and lots of other tips are included at Get the Facts: The SEC’s Roadmap to Savings and Investing, information provided by the Securities and Exchange Commission.

“Managing Your IRA” video - a discussion on basic principles of investing. (3:00 min.)

Taxation of pension income - including distributions from Roth IRAs - is covered at Link and Learn Taxes, a self study course on the IRS web site.

More IRA Resources

• Publication 590, Individual Retirement Arrangements (IRAs)
• Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
• Frequently Asked Questions regarding IRAs
• IRS Forms and Publications for your Roth IRA

Web Site Resources

• FirstGov.gov is a one stop portal to access all federal government public web sites.
• The latest retirement plan information can be found at www.irs.gov/ep.
• General tax information for individuals and businesses is located at www.irs.gov.
• Other retirement plan information can be found on the Department of Labor’s Employee Benefits Security Administration (EBSA) site.
• The Social Security Administration site has information on your Social Security retirement benefit to help you plan your retirement savings strategy.
• The Securities Exchange Commission (SEC) has many publications on investing and more.
• The Federal Deposit Insurance Corporation (FDIC) site explains how to determine whether your IRA account is covered by deposit insurance.