The previous articles in this series about Individual Retirement Accounts (IRAs) – quick guide article and quick guide Q & A — focused on describing fund sources you can use as contributions to Traditional IRAs (TIRAs), as well as differentiation and handling of those contributions from a federal tax standpoint. Now it is time to dive into a different type of a retirement account – a Roth IRA. Roth IRAs (RIRAs) are like TIRAs in the way the accounts are administered but the main difference is how these two types of accounts are taxed.
Unlike TIRAs, which investors usually fund with pre-tax dollars and pay taxes on the withdrawals during retirement, the RIRAs are funded only with after-tax dollars and the retirement withdrawals are tax-free. Here is a quick reference guide with additional considerations for Roth IRAs.
Some of the RIRA rules – especially the conversion rules – are slightly more complex than we saw with TIRAs. Therefore, in my next article and before I move to the next topic of IRA investments, I will answer a few specific questions about RIRAs that I have encountered while dealing with real customers over the years. These questions and answers should provide more clear insights into how to handle some aspects of managing Roth IRAs.
Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and IRA Quick Reference Guide.