How do taxes work on a Roth IRA now and in the future?

Question

Im looking to start a Roth IR and am curious how taxes work on the IRA at the end of the year and then when I retire with it when Im 65

Answer 1

Your answers so far did not explain it very clearly. All money earned by a Roth IRA is tax free but the money you put into a Roth IRA is taxed. In other word the money you put in is taxed but the money you take out is not taxed, so all investment income earned by a Roth IRA is tax free.

Answer 2

A Roth IRA has NO effect on your taxes at the end of the current year. You get ZERO tax benefits from contributing to a Roth IRA in the years you contribute.

When you start to draw from your Roth IRA however (you can begin withdrawing when you're 59 1/2), you pay ZERO income tax on the money. This is because you already paid tax on the money back when you contributed it, since you didn't get any type of tax break then.

Roth IRAs are a great way to practice what is known as "tax diversification." It's best to have some taxable benefits (traditional IRAs, 401(k)s or 403(b)s, a pension) as well as some not taxable retirement accounts (Roth 401(k)s, Roth IRAs) so as to have a hedge against tax rates in the future. This way, you can control how much tax you pay in retirement by drawing on either the taxable or the non-taxable accounts to achieve your desired level of income.

Answer 3

Roth IRA = no income tax deduction now... so you pay tax on money you don't see (or can't use)... but it grows and is withdrawn tax free.

Traditional IRA= Income tax deduction now... so on a $2,000 contribution you'd pay $700 (or so) less in taxes, but you have to pay taxes at your normal income rate when you withdraw it.

The Roth IRA is definately a better deal as far as the pot of gold at the end of the rainbow.

Answer 4

You contribute to a Roth IRA with after-tax dollars. Kind of like buying gasoline--after tax dollars. But when you withdraw the money, assuming you are at least 59.5 years old, the withdrawals are ENTIRELY TAX FREE!!!

Not tax-deferred, like a regular IRA. But TAX-FREE!!!

You do not get a tax deduction in the current year, but so what?