A Roth IRA is similar to a Traditional IRA in that you can invest up to $5,500 annually for 2016 and enjoy tax-deferred growth on your earnings. But there are some important differences. First, contributions are not tax-deductible, but can be withdrawn anytime without paying taxes. Second, earnings withdrawn after five years are tax-free if you meet one of the following criteria:
- You attain age 59½
- Become disabled;
- The distribution is made for a first-time home purchase (up to $10,000);
- The distribution is made to a beneficiary after your death.
If you are 50 years of age or older, you may have the additional benefit of catch-up contributions, which allows you to invest an extra $1,000 per year.
You can contribute the full $5,500 if you're single and your AGI does not exceed $117,000 or if you're married filing jointly and your AGI does not exceed $184,000. Your eligibility to contribute phases out if you're single with an AGI between $117,000 and $132,000, or if you're married filing jointly with an AGI between $184,000 and $194,000.
Converting to a Roth IRA
If you currently have retirement dollars invested in a Traditional IRA but want the benefits of a Roth IRA — including potential tax-free access to your money in the future — you can convert some or all of your Traditional IRA savings to a Roth IRA.
To make a conversion, you have to convert some or all of your Traditional IRA to a Roth IRA. This is considered a taxable event, so you will have to pay income taxes on the amount you convert. If you use part of your IRA money to pay this income tax, you may have to pay an additional 10% penalty tax on that amount.
If you decide to withdraw money from your Roth IRA within five years after the conversion, the taxable portion of the distribution will be subject to a 10% penalty tax, unless an exception applies.
To learn more about Roth IRA Conversions, visit our Roth Resource Center.
Call 1-800-DREYFUS and speak to a representative to learn more about how a Roth IRA can help you build your retirement.
This does not constitute tax advice. Consult your tax advisor. There are fees, expenses, taxes and penalties associated with IRAs.
Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus or summary prospectus, if available, that contains this and other information about a fund, and read it carefully before investing.