Roth IRA Q&A

By Barbara O’Neill, Ph.D., CFP® and
Martie Gillen, Ph.D., MBA, AFC^®, CFLE

The Thrift Savings Plan (TSP) is not the only place where service members can save for retirement. Many may also want to consider a Roth IRA and have questions for Personal Financial Managers.

Below are six Roth IRA questions and answers:

What is a Roth IRA? A Roth IRA is an individual retirement savings account that provides tax-free growth if investors meet certain conditions (age 59 ½ and an account open 5+ years). It is funded with after-tax dollars. A Roth IRA is not an investment “product” per se but is more like a “basket” that people put investment products into. Specific products include mutual funds, individual stocks, bonds, CDs, or other investments available through financial institutions where investors open a Roth IRA with.
Who can contribute to a Roth IRA and how much? Anyone with earned income (salary, wages, self-employment earnings) can make deposits into a Roth IRA. In 2023, the maximum contribution is $6,500 for workers under age 50 and $7,500 for those age 50+ (or the amount of earned income, whichever is less).
When is the Roth IRA deadline? The deadline to make deposits for a calendar tax year (January 1-December 31) is the tax filing deadline (i.e., on or around April 15th of the following year). Therefore, investors have a window of 15 ½ months to make Roth IRA contributions.
What if someone doesn’t have $6,500? Simply contribute what you can, subject to minimum deposit amounts required by the Roth IRA account custodian (e.g., a bank or mutual fund). There is nothing wrong with only contributing $500 or $1,000 to a Roth IRA if that is all someone is able to do. Any savings is better than none!
Are there income restrictions on Roth IRAs? Yes – single taxpayers must have a MAGI (modified adjusted gross income) less than $138,000 to be eligible to deposit the $6,500 maximum amount. Income above that results in reduced contributions until the income exceeds $153,000 MAGI – at that point a single taxpayer is no longer eligible to contribute. The phase-out range for Roth IRAs for married couples filing jointly is up to $218,000 (for a full contribution) to $228,000 (above which, no Roth IRA contribution is allowed).
Where can people go to start a Roth IRA? Just about any financial institution (e.g., mutual funds, brokerage firms, banks, etc.). Many investors choose no-load mutual fund companies that offer options with low fees (e.g., index funds). Most mutual fund companies require a minimum investment to start a Roth IRA, and some allow an investor to start an IRA account with less money than is required for a non-IRA account.