Roth Individual Retirement Accounts (Roth IRAs) are open to anyone earning income in a given tax year, as long as they don't earn too much or too little. Contributions to Roth IRAs are not deductible during the year they are made; rather, they consist of after-tax money. There are also no minimum distributions (RMDs) required, so you can leave your Roth IRA to your heirs if you don't need the money. If your income is too high, you are prohibited from contributing to a Roth IRA and you can only contribute to your Roth IRA what you earn in a given year.
However, it's worth noting that inherited Roth IRAs are subject to RMDs, unless you inherit them from a spouse. If you don't earn anything in a tax year, you won't be able to contribute to your Roth IRA for that year. The total contribution to all of your traditional and Roth IRAs cannot exceed the annual maximum for your age or 100% of your earned income, whichever is less. Roth IRAs are open to anyone earning income in a given tax year, as long as they don't earn too much or too little.
Previously, if you converted another tax-advantaged account (Simplified Employee Pension IRA (SEP), Supplemental Employee Savings Incentive Plan (SIMPLE), Traditional IRA, 401 (k) Plan or 403 (b) Plan)) into a Roth IRA and then changed your mind, you could cancel it in the form of a requalification. A Roth IRA is an individual retirement account where you put your money after taxes and enjoy tax-free growth and withdrawals. For people who work for an employer, the compensation that is eligible to fund a Roth IRA includes salaries, salaries, commissions, bonuses, and other amounts paid to the person for the services they provide. If you do, decide whether you want to make passive or active investments and choose the best Roth IRA provider for your investment approach.
If the option is available, you must tell the administrator or custodian of your Roth IRA what year you want the deposit attributed to. A Roth IRA is an IRA that, except as explained below, is subject to the rules that apply to a traditional IRA. People with traditional IRAs should start receiving the required minimum distributions when they turn 72, but there is no such requirement for Roth IRAs. Every year you make a contribution to the Roth IRA, the custodian or trustee will send you Form 5498 with information about IRA contributions.
While not tax-deductible, contributions to a Roth IRA provide you with an opportunity to create a tax-free savings account.