Retirement-conscious investors have long recognized the potential benefits of the traditional IRA. Another alternative, available since 1998, is the Roth IRA. Roth IRAs permit you to potentially avoid future taxation of earnings on your retirement funds by making nondeductible contributions now. Contributions are limited to $6,000 a year in 2019 ($12,000 for couples) and are made on an after-tax basis. Also, individuals aged 50 and older can make an additional catch-up contribution of $1,000 in 2019. Certain income limits apply. Note that an individuals total contributions to all IRAs -- Roth and traditional -- may not exceed $6,000 annually (in 2019).
While Roth IRA contributions are nondeductible, qualified withdrawals are tax free. Like traditional IRAs, withdrawals from Roth IRAs must generally be made after age 59½ to avoid a 10% additional tax, although exceptions may apply such as for qualified educational expenses or a first-time home purchase. Unlike with traditional IRAs, however, you may continue contributions to a Roth IRA after age 70½, and there are no mandatory withdrawals during your lifetime. Which IRA is right for you? Should you convert your traditional IRA to a Roth IRA? To answer these questions, youll want to compare the after-tax dollars that would be available to you under each option. This will depend on many factors, including your tax bracket, how many years you have until retirement, and when you wish to begin making withdrawals. Consultation with a financial professional and your personal tax advisor is a good idea before you make your choice.