What is the definition of a Roth Individual Retirement Account (IRA)?
A Roth IRA is an individual retirement account that allows you to set aside after-tax income up to a specified amount each year. Any earnings on the account, plus future withdrawals after age 59½, are tax-free.
What are the Roth Individual Retirement Account rules?
There are a few rules, guidelines, and advantages of a Roth retirement account:
Roth IRAs are available to all individuals with earned income, regardless of age.
Contributions are made with after-tax dollars, so they are not tax-deductible.
You will pay no additional taxes when you withdraw funds as long as your account has been open for 5 years or more and you’re at least 59 ½, OR the withdrawal is the result of death or disability.
There are no required distributions from a Roth IRA.
Is a Roth or Traditional IRA better in Illinois?
The most important difference between Roth IRAs and traditional IRAs is the timing of your tax break. With a traditional IRA, your contributions are tax-deductible. With a Roth IRA, your withdrawals are not taxed. Typically, you’d choose a Roth IRA if you think your tax rate will be higher in the future, and a traditional IRA if you think your tax rate will be lower in the future. However, there are federal eligibility requirements that may ultimately determine which type of IRA you are eligible for.
There are a number of factors to consider when choosing whether to open a traditional or Roth IRA. You don’t have to go to a big bank to open an IRA account. Here at Liberty, we can help you decide which one is right for your financial situation.
Does Illinois tax Roth IRA conversions or distributions?
No, Illinois specifically excludes Roth IRA distributions from state taxable income and does not tax the conversion of a traditional IRA to a Roth IRA. Wondering how to start a Roth retirement account? Simply stop in a branch or contact us today to discuss your IRA options and open a Roth IRA!