Question

How are Roth IRA contributions taxed?

Answer

If you’re wondering “how are Roth IRA contributions taxed?” here’s the answer… Although there is no up-front tax deduction for Roth IRA contributions as there is with a traditional IRA, Roth distributions are tax-free when you adhere to certain stipulations.

Because the funds in your Roth IRA have come from your contributions, and not from tax subsidized earnings, you can tap your contributions (but not your earnings) tax-free and penalty-free at any point you wish to do so.

A Roth IRA is often an attractive savings vehicle to consider for individuals who expect their tax rate to be higher during retirement than it is currently. Roth IRAs allow you to pay taxes on money going into your account and then all future withdrawals are tax-free. Roth IRA contributions aren’t taxed because the contributions you make to them are usually made with after-tax money, and you can’t deduct them.

Earnings in a Roth account can be tax-free rather than tax-deferred. So, you can’t deduct contributions to a Roth IRA. However, the withdrawals you make during retirement can be tax-free. They must be qualified distributions.

Where to Go for More Tax Help

Do you have retirement savings accounts and are looking for a way to maximize your tax savings? Learn more about ways to file with H&R Block.

Related Topics

Related Resources

Are Scholarships And Grants Taxable?

Are scholarships and grants considered taxable income by the IRS? Learn more from the tax experts at H&R Block.

Reporting Rental Income on Tax Return

Renting property comes with extra tax reporting. Learn what you need to know about reporting rental income on your tax return from the experts at H&R Block.

What Is State Income Tax Reciprocity?

Live in one state, but work in another? Review state income tax reciprocity rules with the team at H&R Block to learn how it may affect your taxes.

What Is Modified Adjusted Gross Income?

Trying to determine your modified adjusted gross income (MAGI)? Find out what goes into calculating modified adjusted gross income and how it’s used.