Question

Jimmy establishes a Roth IRA at age 47 and contributes a total of $89,600 over 18 years. The account is now worth $112,000. How much of these funds may Jimmy withdraw tax-free?

Answer 1

Answer:

Jimmy may withdraw $112,000 tax-free.

Explanation:

Jimmy's Roth IRA is a special retirement account where he has paid taxes on money going into the retirement account.  Then all future withdrawals are tax-free.  Jimmy can choose Roth IRAs when he considers that his taxes will be higher in retirement than they are at the time of the contributions.  It is important to note that Jimmy cannot contribute to a Roth IRA if he makes too much money, instead, he will be required to contribute to a traditional IRA where taxes are paid during withdrawal.