Roth IRAs are tax-favored financial vehicles that enable investors to save money for retirement. They differ from traditional IRAs in that taxpayers cannot deduct contributions made to a Roth. However, qualified Roth IRA distributions in retirement are free of federal income tax and aren’t included in a taxpayer’s gross income. That can be advantageous, especially if the account owner is in a higher tax bracket in retirement or taxes are higher in the future.

A Roth IRA is subject to the same contribution limits as a traditional IRA, the maximum combined annual contribution an individual can make to traditional and Roth IRAs is $7,000 in 2024 (an increase of $500 from 2023). Special “catch-up” contributions enable those nearing retirement (age 50 and older) to save at an accelerated rate by contributing $1,000 more than the regular annual limits.

There is no maximum age at which Roth IRA owners can contribute to a Roth as long as they have earned income, and they don’t have to begin taking mandatory distributions due to age, as they do with traditional IRAs; however, beneficiaries of Roth IRAs must take mandatory distributions.

Roth IRA withdrawals of contributions can be made at any time and for any reason. Withdrawals of contributions are tax-free and not subject to the 10% federal tax penalty for early withdrawals. In order to make a qualified tax-free and penalty-free distribution of earnings, the account must meet the five-year holding requirement and the account holder must be age 59½ or older. Otherwise, these withdrawals of earnings are subject to ordinary income tax and the 10% federal tax penalty (unless an exception applies).

Keep in mind that even though qualified Roth IRA distributions are free of federal income tax, they may be subject to state and/or local income taxes. Eligibility to make annual contributions to a Roth IRA phases out for taxpayers with higher incomes.

If you’re looking for a retirement savings vehicle with some distinct tax advantages, the Roth IRA could be appropriate for you.

When selecting ways to invest your cash reserve, you should balance your liquidity needs with potential returns. Short-term investment instruments, such as Treasury bills, certificates of deposit, and money market mutual funds, can provide you with the liquidity needed to meet expected and unexpected expenses and to increase your short-term investment income.

By actively managing your short-term reserves, you can provide a means of saving for the future. You can use this money to increase your net worth with little or no additional risk to your principal. It’s important to remember that because income and personal circumstances are subject to change, you should conduct a periodic review of your cash reserve and its structure.

Note: Treasury bills are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest.

Note: Bank CDs are insured by the FDIC for up to $250,000 per depositor, per federally insured institution.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money market fund.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.