Frequently asked questions

About Roth IRAs

 

What is a Roth IRA?

A Roth IRA is a retirement savings account in which you invest after-tax dollars up to a specified amount each year. Because your money is taxed prior to investment, your money grows on a tax-free basis.

Withdrawals of interest earnings are also tax-free and penalty-free if the account has been open at least five years and, the owner is 59½ or older, or meets other qualifying distribution rules. You can also withdraw your principal without being taxed or penalized by the IRS before age 59½.

How does a Roth IRA work?

Here are a few things you should know about Roth IRAs:

  • Eligibility: The eligibility requirements for Roth IRAs are determined by the IRA and based on your modified adjusted gross income (AGI). To learn more, visit IRS.gov.
  • Tax deduction: Unlike a Traditional IRA, contributions are not tax deductible with a Roth IRA.
  • Contributions: There are limits to how much you can contribute to your Roth IRA account each year, as specified by the IRS. Like eligibility, the amount you may contribute is defined by your filing status and modified AGI. To learn more, visit IRS.gov. Unlike Traditional IRAs, you can make contributions to a Roth IRA after age 70½.
  • Withdrawals: You can withdraw your principal at any time without being taxed or penalized by the IRS. If your account has been open at least five years and you’re 59½ or older, you may withdraw interest earnings without paying taxes or penalties. Interest earnings withdrawn before this time are subject to a 10 percent penalty.
    • Exceptions: There are, however, some exceptions. You can avoid paying the penalty if the account has been open five years and you are withdrawing funds to pay for higher education, a first home, or death or disability expenses.
  • Required Minimum Distribution: Unlike Traditional IRAs, there is no required minimum distribution (RMD) for Roth IRAs during the life of the original owner. Upon the death of the account owner, beneficiaries must start taking RMDs.

 

Want to learn more about Roth IRAs?

We’re here for you. Speak with a banker at a BBVA Compass branch near you or contact one of our customer service representatives by phone.