A Roth IRA is a retirement savings vehicle like a 401K or traditional IRA. Roth refers to the legislative sponsor, and IRA stands for individual retirement account. Unlike a traditional IRA, your contributions to a Roth IRA are not tax deductible. However, the beauty of a Roth IRA is that you’re not stuck with a tax bill on your withdrawals. That includes the gains on your investments, as long as you are older than 59 ½ years and the Roth IRA has been opened for at five years. In short, a Roth IRA is a tax-advantaged form of wealth accumulation. First-time home buyers can pull out as much as $10,000 in profits, again without penalties or taxes, as long as the account has been in place for five or more years.
The tax treatment on withdrawals from a Roth IRA is dependent upon whether the withdrawals are qualified or non-qualified. For distributions to be considered qualified, thereby receiving the tax-free benefit, they must meet the following criteria following at least 5 years after opening their first Roth IRA account:
Roth IRAs can be established with financial institutions which have met the IRS requirements. Banks, brokerage houses, credit unions and savings and loans are just a few examples of financial institutions in which a Roth IRA can be established.
