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

Garage Sale Money and Capital Gains: What You Should Report to the IRS

Do capital gains apply to garage sale money? The answer depends on a number of factors. Learn more at H&R Block.

For Pro Golfers, Tough Taxes Are Par for the Course

Professional golfer taxes can be complicated and confusing. Learn more about tricky golfer tax issues like travel deductions and residency rules with H&R Block.

How Renting Out Your Extra Bedrooms Affects Your Taxes

Thinking about renting out a room in your home? Learn more about the potential tax implications with the experts at H&R Block.

How do I calculate taxable income?

Finding your taxable income is an important part of filing taxes. Learn how to calculate your taxable income with help from the experts at H&R Block.