Most Common Roth IRA Questions

These are the most commonly asked questions about Roth IRAs:

Q: What is a Roth IRA?

A: A Roth IRA is a relatively new type of retirement account that is in essence a modified Traditional IRA.  It is a very popular type of investment vehicle and one of the best ways for people to be financially secure by retirement.  The Roth IRA was named after its’ creator, William Roth, a senator and lawyer who advocated for more flexibility in utilizing retirement funds for all citizens.

Q: How does a Roth IRA work?

A: The main premise that the Roth IRA is built on is tax-free withdrawals.  You do of course pay taxes on your entry, but in many cases this situation is more beneficial.  Once you have contributed, the account serves as an investment vehicle by allowing you to purchase stocks, bonds, etc.  You can either handle your account yourself or turn it over to a professional for a small fee.  There is a lot of flexibility with the Roth IRA, to learn more visit our article on Roth IRA Benefits.

Q: Can i roll my Traditional IRA to a Roth IRA?

A: In the past there were limitations on converting your account based on your income, but these have been eliminated since 2010.  The only requirement to having a Roth IRA now is to have an earned income for the year.  Learn more about IRA Conversion here.

Q: When can you cash out a Roth IRA?

A: There are a lot of special circumstances that allow you to pull out money penalty free, but in general there are two conditions you must fulfill.  The first is that you must be 59.5 years old and the second is that your IRA must be at least 5 years old.  If you meet these two conditions you are more or less free to withdraw as you wish.  For more information, read Withdrawal Rules.

 Q: Can i pull money out of a Roth IRA for medical bills?

A: Sometimes you are able to do this, depending on the size of the bills.  If the cost of the treatment/expenses is over 7.5% of your taxable income, you will not pay penalties on your withdrawals.  If they are less than that you may pay penalties but not always.  In most cases you can withdraw your contributions absolutely penalty free.

Q: Can i contribute to both a 401k a Roth IRA?

A: You can absolutely contribute to both, in fact if you can you should.  The more interesting question is can you contribute to different kinds of IRAs.  In this case you are allowed to, but the total contribution (adding both account contributions together) must not exceed your maximum contribution (usually $5-6,000).