In yesterday’s post, I promised I would discuss Roth IRA’s.  So here goes…

Roth IRA’s are retirement accounts that you fund with after-tax dollars.  In other words, you use money that you’ve already paid taxes on to fund them.  For example, you get your paycheck and send money to your Roth IRA from your paycheck.  It isn’t taken out before you get your check.  That’s an example of after-tax dollars.

How much can you contribute? It depends on your age.  Currently, if you’re under 50, the amount you can save is $7,000 annually.  However, if you’re 50 or over, you can do a catch-up contribution of an additional $1,000.  That makes your total contribution $8,000 each year.  This amount may change based on political law changes.  Make sure you know how much you can contribute.  If you contribute too much, you could be penalized.  If you have a financial planner, they should be able to guide you.  If not, do an internet search.

What is the benefit of a Roth IRA?  Because they’re funded with after-tax dollars, you won’t ever pay taxes on your contributions when you withdraw funds.  Depending on how long you’ve had your Roth IRA and your age, you may or may not owe taxes on the earnings.  Having said that, there are rules for having and using Roth IRA’s.  I highly recommend you go to the IRS’s page on Roth IRA’s for the latest information.

While my husband was working, I was able to contribute to my Roth IRA under the Spousal IRA rule.  I was already retired, but he was still working, so the rule applied.  Again, check the IRS’s website on current rules for Roth IRA’s.

So what is the moral of today’s post?

I highly recommend having a Roth IRA and putting as much money as you can afford up to the legal limit.  In my opinion, a Roth IRA is one of the best retirement savings options available.  I have one and if I could continue to contribute, I would.  Unfortunately, since neither hubby nor I don’t have an income any longer, I can’t contribute.  Social Security doesn’t count as it’s not considered earned income.  But if you’re still working, consider a Roth IRA!