Understanding Roth IRAs

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Understanding Roth IRA:

A Roth IRA (Individual Retirement Account) is an investment account that allows you to save for retirement while providing potential tax advantages. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars. This means you pay taxes on the money you contribute upfront, but the earnings and withdrawals in retirement can be tax-free.

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Here's an example:

‍Let's say you contribute $5,000 to your Roth IRA in a given year. Since this contribution is made after taxes, it won't reduce your taxable income for that year. However, the $5,000, along with its potential earnings, can grow tax-free over the years. When you retire and start withdrawing from your Roth IRA, these withdrawals are not subject to income tax, providing a valuable source of tax-free income in retirement.

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Eligibility Criteria

‍As of 2024, your eligibility to contribute to a Roth IRA is based on your income. For tax year 2023, if you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $153,000, and for tax year 2024, it should be under $161,000. If you're married and file jointly, the MAGI limits are $228,000 for tax year 2023 and $240,000 for tax year 2024.

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Contribution Limits:

‍The maximum total annual contribution for all your IRAs combined is as follows:

• Tax Year 2023: $6,500 (under age 50) / $7,500 (age 50 or older)
• Tax Year 2024: $7,000 (under age 50) / $8,000 (age 50 or older)

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Effective January 1, 2024, the SECURE 2.0 Act allows eligibility to contribute to a Roth IRA using 529 rollover assets, providing additional flexibility.

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FAQs on Roth IRA:

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Q: What is the eligibility criteria for contributing to a Roth IRA?

A: Eligibility is based on your income level. For tax year 2023, MAGI must be under $153,000 for singles and $228,000 for married filing jointly. For tax year 2024, these limits are $161,000 and $240,000, respectively.

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Q: How much can I contribute annually to my Roth IRA?

A: The maximum annual contribution is $6,500 (under 50) or $7,500 (50 or older) for tax year 2023 and $7,000 (under 50) or $8,000 (50 or older) for tax year 2024.

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Q: Can I use 529 rollover assets to contribute to my Roth IRA?

A: Yes, effective from January 1, 2024, the SECURE 2.0 Act allows contributions to a Roth IRA using 529 rollover assets.

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Q: Are traditional IRAs eligible for the 529 rollover option?

A: No, the 529 rollover option is specific to Roth IRAs and does not apply to traditional IRAs.

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Q: How can Vincere Tax assist with Roth IRA-related questions?

A: If you have any questions or need guidance on Roth IRAs, please reach out to the knowledgeable team at Vincere Tax for assistance.

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