- You can put away $6,000 each year in your Roth IRA.
- After age 59 ½, the money is yours to use without taxes or penalties, as long as the account has been open at least five years.
Hey, hey, what’s a Roth IRA anyway?
For most people, taking the plunge into opening a retirement account can be a little scary and confusing. But there really are two numbers you need to consider to get started:
$6,000: That’s the full amount you can invest per year into all IRAs in your name. So if this Retire account is your only IRA, you can invest up to $6,000
59 ½: That’s the age you can start making distributions from your account without incurring taxes or penalties.
Let’s break it down some more.
Once you open up a Roth IRA, you can put up to $6,000 away every year. (If you’re 50 or older, you can make catch up contributions of an additional $1,000 per year, for a total of $7,000 annually. You can keep making contributions after 70 ½, if you continue working.)
While the Internal Revenue Service (IRS) will hit you with some pretty steep penalties if you take the money out before you turn 59 ½–we’re talking potentially a 10% charge in addition to your individual tax rate, which is about 20% for the average person–after that age, you can start making withdrawals from the account, with no taxes or penalties, as long as your account has been open for at least five years.
Be sure to read: What’s a Roth IRA? Why You Should Know About This Retirement Tool to learn about the different withdrawal rules that apply to Roth IRAs.