Roth IRAs:

Roth IRA is an individual retirement account. Here, you pay taxes on money going into your account, and then all future withdrawals are tax-free. So they are best when you think your taxes will be higher in retirement than they are right now.

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How Contributions Are Treated

The annual contribution limit in 2021 to a Roth IRA is $6,000 (same as 2020). An additional "catch-up" contribution of $1,000 (same as 2020) is allowed for people age 50 or more. To make the entire contribution, you must earn about $6,000 from personal services and have income (modified adjusted gross income or MAGI) less than $125,000 if single or $198,000 on a joint return in 2021. 

In addition, you can contribute to a Roth IRA for your spouse, subject to the income limits above. So assuming earnings (your own or combined with your spouse) of at least $12,000, up to $12,000 ($6,000 each) can go into the couple's Roth IRAs. As with traditional IRAs, there's a six percent penalty on excess contributions. The rule continues that contributions reduce the dollar limits to traditional IRAs.

How Withdrawals Are Treated

You may withdraw money from a Roth IRA at any time; however, taxes and penalties could apply depending on the timing of contributions and withdrawals.

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