(NewsNation) — It’s never too late, or too early, to start saving for retirement.
401(K)s are popular employer-sponsored retirement savings plans, while individual retirement accounts (IRA) are opened and managed individually.
IRAs come in different forms, including the Roth IRA.
What is a Roth IRA?
A Roth IRA is a type of retirement savings account an individual (not an employer) funds with after-tax dollars.
That means you’re investing income after taxes have been deducted from your paycheck.
Withdrawals from the account are also tax-free with no withdrawal penalties as long as you are at least 59 and a half years old.
If you plan to take money out of your Roth IRA, consult a professional or your investment company to ensure all conditions are met to avoid any penalties.
This is different from a traditional IRA, which taxes withdrawals in retirement.
How to open a Roth IRA
Anyone at any age can open a Roth IRA as long as you have earned income to contribute.
To open a Roth IRA, you will need to:
- Choose a financial institution. Companies like banks, credit unions and online brokerages offer investment plans and will host your account. Common online brokerages include Fidelity Investments, Vanguard and Charles Schwab, but there are many more to choose from.
- Determine eligibility. Income limits apply, so ensure you meet those. You must make less than $150,000 if you file taxes single or $236,000 if filing jointly, according to the Internal Revenue Service.
- Gather necessary documents. You may need identifying information when opening the account, so locate your driver’s license, social security number, employment information and bank account information.
- Open the account. This can be done online, and you will fill out online forms. Consult a professional with any questions.
There are annual contribution limits and penalties if you exceed the limit. Anyone under age 50 can invest up to $7,000 a year, and anyone over 50 can contribute up to $8,000 a year.