A ROTH IRA is a unique retirement savings vehicle.
Unlike a traditional IRAs where taxpayer contributions are tax deductible in most cases, contributions to a ROTH IRA are not. The tax benefit of contributing to a ROTH IRA comes at the distribution stage where contributions can always be withdrawn tax free and earnings, when considered a qualified withdrawal, are also tax free. In order to avoid being doubly taxed and penalized on contributions made to a ROTH IRA withdrawn prior to the age of 59 ½ , it is important that all ROTH IRA contributions are filed with your tax return using form 8606. That way, when premature distributions are made, the IRS knows the portion that is taxable and that which is not. Your qualified tax advisor will help you organize and plan for this very valuable savings tool.
Stuart Steinberg, CPA, MBA has owned a strategic tax planning practice on the North Shore for 23 years. Please feel free to contact him anytime and let Erock Tax take care of you!