A Roth IRA is an after-tax retirement account, in contrast to a traditional IRA or most 401(k)s, where contributions are made on a pre-tax basis. A Roth IRA is best for low- to middle-income Americans who don't want to worry about income taxes in retirement and want the increased flexibility that comes with a Roth IRA.
What is a Roth IRA and how does it work?
A Roth IRA is an individual retirement account (IRA) that works a little differently than most other types of retirement savings accounts. Specifically, while most other retirement contributions are tax deductible, Roth contributions are not. Instead, withdrawals in retirement are tax-free. This essentially allows investors to pre-pay their taxes now, so they don't have to worry about it later on.
For the 2016 tax year, Roth IRA contributions are limited to $5,500 per person, with an additional $1,000 "catch-up" contribution allowed for individuals over 50, for a total of $6,500. It's important to note that there is no such thing as a "joint IRA," (hence the "I" in IRA) so you and your spouse will each need your own account. And, these contribution limits apply across all IRAs you own. In other words, if you contribute $3,000 to a traditional IRA, you can contribute $2,500 to a Roth IRA to stay within the $5,500 limit.