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3 Considerations Before Opening a ROTH IRA

3 Considerations Before Opening a ROTH IRA

| March 07, 2019

A ROTH IRA is a retirement savings account that allows you to put money aside for retirement and any growth in the account is tax-free. Unlike a traditional IRA, in a ROTH IRA, you pay taxes on the front end and therefore won’t owe taxes in retirement. So, your growth and any withdrawals you make after age 59 1/2 are tax-free. If you have other qualified accounts like traditional IRAs or 401(k)s, a ROTH can be a nice complement to help diversify your tax exposure during retirement.


  1. Earned income limitations

ROTH IRAs can be a great retirement vehicle as long as you have earned income and don’t exceed the income limitations.  As of 2019, the Adjusted Gross Income (AGI) phase-out range for ROTHs is now between $193,000 and $203,000 for couples who file jointly, and $122,000 to $137,000 for single filers.

A couple tips:

  • If you’re phased out of the ROTH IRA because you make too much, you can look into using a ROTH 401(k)
  • You may be able to increase your pre-tax 401(k) contribution in order to lower your taxable income enough to qualify you for a ROTH IRA


  1. There is a fairly low cap

You may be saying great. I’ve already maxed out my employer 401(k) and I want to put as much money as I can into the ROTH account. Before you move too fast, there is a maximum amount you can put into the account each year. The contribution limit for 2018 is $5,500 and for 2019 is $6,000; and if you are over age 50, that limit is $1,000 higher.


  1. Future state of income taxes

A huge draw of the ROTH IRA is that your withdrawals in retirement are tax free. But, do any of us really know what the income tax landscape will look like at the time of our retirement. We don’t. However, we only have to look back at history to tell us that if taxes are headed anywhere, it is likely they will go up, not down. With that in mind, paying the taxes now seems like a smart move.


If you have checked each of the boxes above, ROTH IRAs sound like a great vehicle for you. In summary ROTH IRAs offer tax free growth, tax-free distributions in retirement, the ability to withdraw your contributions without a penalty giving you greater access to your own money, and no Required Minimum Distribution when you turn age 70½. A win, win, win, win.


If you would like to know more about whether a ROTH IRA is right for you, contact us anytime.