Roth IRA – How Much do You Need to Start a Roth IRA?

A Roth IRA  is designed as an individual retirement account that offers tax-free growth as well as tax-free withdrawals in retirement. With a Roth IRA, every penny withdrawn by you in retirement remains yours. Roth IRA rules state that as long as you have owned your account for up to 5 years and you are age 59 ½ or older, you can withdraw your money when you want to and you won’t owe any federal taxes.

Roth IRA

Benefits of a Roth IRA

  • Withdrawals of earnings are free from federal income tax, as long as the Roth IRA has been in operation for five years and you are at least 59 ½
  • The distributions for your beneficiaries come tax-free.
  • RMDs (Required Minimum Distributions) are not necessary.
  • You can withdraw contributions at any time without federal income taxes or penalties.

How Much do You Need to Start a Roth IRA?

The unique thing about IRA is that you are not under compulsion to invest a ton of money in order to open an account. The IRS does not need a more minimum amount to open a Roth IRA. As opposed to most mutual fund companies, you can start a Roth IRA with as little as $50.

Roth IRA Eligibility

If you earn income, then you are eligible for a Roth IRA. However, you can’t contribute more than you make. If your 19-year old son or daughter, happens to earn an income of $3,000, they can contribute up to $3,000 to a Roth IRA. You on the other hand can also contribute the $3,000 on their behalf as long as you can afford it.

2020 Contribution Limits of Roths IRA

The 2020 limits of Roths IRA is as follows: the total amount. You can contribute to either a Roth IRA or a traditional IRAs is $6,000 or $7,000. If you are age 50 or older.

Setting Up Roths Accounts for Your Spouse and Kids

Do you know that you can have a Roths IRAs account for anyone and everyone in your family, who has earned income?.

Additionally, there’s an exception for your spouse. Here it is, under a spousal IRA, you can make a contribution of up to $6,000 (or $7,000 if 50 or older) even if your spouse has no earned income. Now, under this special type of IRA, you can make a contribution to Roth or traditional IRA accounts for both you and your spouse, in as much as you have sufficient earned income that can support both contributions.

To be eligible for a spousal IRA, your partner must be your spouse, not a girlfriend, boyfriend, or fiancé.

Furthermore, if any of your children have earned income, you can open a custodial Roth for that child. Now, the contributions will be eligible if your child has a part-time job, or earns money from activities like babysitting, lawn cutting, freelance writing, etc.

The disadvantage however is that the income received must be reported to the IRS, for it to qualify for contributions. Contributions depend on income declared on your income tax return.

Phased Out

An income ceiling has been set by the IRS on your ability to contribute. To a Roth IRA. If you happen to earn in excess of that ceiling, you won’t be able to contribute to a Roths IRA. This is unlike the Traditional IRAs, where the contribution is no longer tax-deductible if you are covered by an employer-sponsored retirement plan and your income exceeds a certain level. When this happens, you can still make a contribution to a traditional IRA, but it won’t be tax-deductible.

The current income limits beyond which you can no longer make a Roth contribution are thus:

Single, full contribution up to $124,000, partial contribution up to $139,000, after which, the contribution is no longer allowed.

Married filing jointly, full contribution of two $196,000, partial contribution up to $206,000, after which no contribution is allowed.

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