What is the tax benefit of a Roth IRA for someone that is young with a low salary, that is expected to make a significantly higher salary in the future? Assume the US tax brackets stay the same.
Roth IRA is an type of IRA ( Individual Retirement Account ).
As mentioned in the question if the person is young and expected to get high salary in future investing in ROTH IRA will make their retirement withdrawals tax free. As He/she is paying is already after tax the retirement fund will grow as tax free.
This is one of the major benefit one can enjoy under Roth IRA.
One of the limitations of ROTH IRA is that if the individual earns too much money he/she cannot make contributions to ROTH IRA. There is a maximum limit of annual income and people who earn within this income only can contribute to ROTH IRA.
For 2019 - $137,000 for singles and $203,000 for Couples.
For 2020 - $139,000 for singles and $209,000 for couples.
As mentioned in the question, he/she can make contribution to IRA now with low salary but if their salary increased significantly in future and exceeds the annual income limit then he/she cannot contribute towards Roth IRA.
What is the tax benefit of a Roth IRA for someone that is young with a...
One of the simplest tax avoidance strategies is to contribute to a Roth IRA, although this may not be right for everyone. Some individuals, particularly low-income households that may be eligible for tax credits because of young children in the home, may benefit more from contributions to a traditional IRA. Here, you want to help Jennifer identify the best retirement savings option for her situation. Jennifer is 25, single, and makes $38,000 a year. Jennifer does not have access to...
3. A second type of IRA is the "Roth IRA." Suppose you open a Roth IRA account. a. How much can you deposit into the account for 2019 if you are less than 50 years old? b. How are the Roth contributions treated for tax purposes? In other words, how does this contribution affect your taxes? c. When you make withdrawals in retirement, how are the distributions and the investment returns (the money you withdraw) taxed? d. Can you contribute...
1. What type of person would benefit from choosing a traditional IRA instead of a Roth IRA? When you are 25 years old, which IRA do you think will make more sense for you? Why?
1. What type of person would benefit from choosing a traditional IRA instead of a Roth IRA? When you are 25 years old, which IRA do you think will make more sense for you? Why?
The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying individuals to make after-tax retirement contributions of up to $2,000 annually. Contributions to a Roth IRA are not tax-deductible, but no taxes are paid on earnings generated from a Roth IRA. In contrast, contributions made to traditional IRAs are tax-deductible, but individuals will pay taxes on all future distributions. In short, investors using the Roth IRA make contributions that have already been taxed and have earnings that...
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True or False. You are in the 24% marginal tax bracket. You make a Roth IRA contribution of $5,000 for that tax year. This contribution will reduce your income taxes by $1,200 for the tax year. True False
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In general, which of the following factors make the idea of converting a traditional IRA to a Roth IRA seem more attractive? a. A high current tax rate and a low expected tax rate during the account owner's retirement, b. The expectation of a low rate of return o. the investments held in the account after the conversion, c. A low current tax rate and a high expected tax rate during the account owner's retirement Years, d. A short time...