What does Roth IRA Explained mean?
In this blog post, we talked about the best index funds for Roth IRA. Let’s take a step back: what is a Roth IRA Explained?
A Roth IRA stands for a Roth Individual Retirement Account, and is a type of retirement account with certain tax advantages. For this account, you can contribute post-tax money into the account for tax-free growth, and subsequently, tax-free withdrawals. So, by the time you need to withdraw money from this account, you won’t have to worry about the taxes on the money. At least not the money pulled from a Roth IRA.
This sounds too good to be true!
So, what should everyone know about Roth IRAs?
This post is about Roth IRA Explained.
Where can you open a Roth IRA?
Vanguard, Fidelity, Charles Schwab. Wondering what the differences between each of these brokerages are? Check this post out for an overview of Fidelity vs Vanguard vs Charles Schwab.
What can you invest in a Roth IRA?
Think of a Roth IRA just as a vehicle – similar to your savings or checking account. It’s a vehicle that holds retirement money, with certain rules including specific tax advantages and contribution limitations. That being said, you can use your Roth IRA funds to invest in index funds, stocks, etc. The selection all depends on the brokerage you open a Roth IRA account with.
What are the eligibility requirements of a Roth IRA?
Great question! So, as long as you have an earned income, you can contribute to a Roth IRA. However, there are some stipulations based on income range. If you file as single, you are eligible to contribute to a Roth IRA as long as you make less than $138,000 (2023). In past years, some of these eligibility requirements changed, so check this site out for more specific details depending on your tax filing status!
What are the differences between Roth IRA and 401(k)?
Roth IRA is self-opened, funded, and invested. The types of funds you can invest in depending on which brokerage/platform you open an account with. For example, Fidelity offers a lot of free/low cost funds to invest in. Vanguard also has a lot of offerings; however, the biggest limitation is the minimum investment amount at $3,000. That’s (almost) half of your Roth IRA contribution limit for the year!
A 401(k) is typically offered through an employer, funded, and invested. The options provided for you to invest in may be much more limited.
There are a number of other differences between a Roth IRA vs 401k. Check this post out for more info on Roth IRA vs 401k.
There you have it, Roth IRA Explained! Wondering if you should contribute more on a 401k instead? Check this post out for more info on Roth IRA vs 401k.
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