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A ROTH IRA is a type of individual retirement account that allows a person to save for his or her retirement. It is very similar to a traditional IRA, but the annual contributions you make to the account are not tax-deductible. When you take a qualified distribution from the account, the income is tax-free. If your distribution is not qualified, you will be subject to a penalty for making a withdraw from the account before you are technically eligible to do so.
A qualified distribution from your ROTH IRA is:
As with a traditional IRA, the maximum annual contribution limits vary based on your age and tax filing status, along with the year. The IRS will provide an updated maximum annual contribution amount every year before starting to accept income tax returns.
You can convert traditional IRA accounts to ROTH accounts, though it is a taxable event. Depending on your financial situation, it may be best to keep the accounts as they are, to avoid penalty. You may make contributions to both a traditional IRA and a ROTH IRA in the same tax year, provided the combined amount does not exceed the maximum contribution amount allowed for either plan type in the given tax year.
You can open a Roth IRA at a bank, mutual fund, or with a brokerage.