Roth IRA FAQ’s

How Does a Roth IRA Work?

With the right guidance, you can technically go online and open up a Roth IRA in a matter of minutes. Send us a quick message if you need help and we can easily guide you.

How Much Can I Contribute to a Roth IRA?

For 2019, you can contribute as much as $6,000 ($7,000 if you're age 50 or older) to a Roth IRA. But you don't have to deposit it all at once. You have 15 months—from Jan. 1 to the tax year’s filing deadline in mid-April of the next year—to max out your contributions.

However, there are two income requirements for Roth IRAs:

  • You must have "earned income" to contribute to a Roth IRA. You can't contribute more than you earned from wages and other income. So, if you earned $4,000, that's the most you can contribute.

  • High earners may not be able to make the full contribution (or any at all). For 2019, your contribution is reduced if you make between $122,000 and $137,000 as a single filer, or $193,000 and $203,000 if you're married filing jointly. If you make more than the upper limit for your category, you can't contribute at all to a Roth. 

What Are Roth IRA Withdrawal Rules?

The withdrawal rules for Roth IRAs are more flexible than those for traditional IRAs and employer-sponsored plans like 401(k)s. You can withdraw your Roth IRA contributions at any time, for any reason, without owing tax. And withdrawals during retirement are tax-free, as well.

Of course, if you’re a millennial today, that doesn’t help you now. But there is something that can help millennials who struggle to save for a down payment. It's called the first-time homebuyer exception.

You can use as much as $10,000 of your Roth to buy, build, or rebuild a home, provided you’re a first-time homebuyer. Meeting that restriction is easier than it sounds. The IRS considers you a first-time homebuyer if it's been at least two years since you owned a home.

How do I Invest in My Roth?

The greatest advantage an investor has is time. Millennial investors have time to take advantage of the power of compounding. But they also have years to ride out any stock market fluctuations.

A Roth IRA is an account that you put investments into. It's not an investment on its own.

History has shown that investments appreciate over time—despite the inevitable downturns. As a result, millennials are in a good position to take a little more risk in exchange for the higher potential rewards with investments like:

  • Individual stocks.  Growth stocks and stocks that pay dividends are especially popular.

  • Mutual funds. There are index funds and actively managed funds. Growth stock mutual funds can be ideal for many investors.

  • Target-date funds. Decide what year you want to retire and pick a fund that matches. If you want to retire in 2040, for example, choose the (hypothetical) XYZ 2040 target-date fund. These funds automatically rebalance from higher-risk to lower-risk investments as you get closer to retirement.

  • Exchange-Traded Funds (ETFs). ETFs are like mutual funds in that they usually track an index, but they typically cost less on an annual basis.

  • Real estate. You can hold real estate investments in a Roth IRA, but you’ll need a self-directed Roth IRA to do so.