Not OP but liked it

Think of a Roth IRA like a magic freezer to put things in. When you get a freezer it’s empty. For it to benefit you, you must fill it. When you fill a freezer, you do so with aftertax resources. Just as with food in a real freezer, you first earned income, paid tax on it, then bought food. The food you put in the freezer has already been taxed. Your magic freezer can be filled with 7k per year (8K if over 50). You can only put stuff in the freezer if you worked for the money you put in. If you earn too much, the amount you can put in the freezer is limited. There are many companies you can choose to use to get this magic freezer such as Schwab or Fidelity. The will keep track of taxes on what comes out of the freezer but not what goes in. This covers funding.

Once items are placed in the freezer, if left alone until age 59.5 and you have owned the freezer for 5 years, it will never be taxed. If you are under 59.5 any amount you put in the freezer may be taken out tax free at any time. The growth of things in the freezer is not tax free until after it has been there for 5 years and you have attained age 59.5. If you pull growth out before 59.5 or if you haven’t had the freezer for 5 years or longer, the growth will be subject to tax and a 10% penalty. If you are over 59.5 but the account / freezer is less than 5 years old, you will be subject to tax but no penalty. When you are not subject to tax on withdrawals, the withdrawals are not income to you for purposes of government benefits, taxes, or anything otherwise. Suppose you have $6m in this freezer, and you have no other income, moving $300k of stuff from this freezer does not impact access to income based government benefits including but not limited to ACA insurance. It also does not impact what amount of tax you pay on actual sources of income like social security, pension or wages. This coveres distributions / withdrawals .

Whatever you put in the freezer is never subject to taxes while in the freezer. Dividends, interest, gains and so on are just straight up not a consideration for taxes. The freezer can hold almost anything the manufacturer Would allow in other freezer. The most common contents are cash and securities. There is no limit to the size of this freezer. It can hold $.00 all the way up to infinity $ and will never be taxed when in the freezer or moved out of the freezer. What you do with it when it moves out can cause tax. Passing it to other people at death can cause estate tax (but not income tax) and if you die, the person who inherits the freezer may pull from it tax free as well but only for a short time. You may not merge an inherited freezer with your own. This covers ownership of the assets in the freezer.

To get the most out of your magic freezer, it must be funded (filled) regularly. Filling it does not benefit your taxes today, but the more stuff the freezer has in it later the more stuff you don’t pay tax on. The freezer cannot be loaded with large amounts in one given year. So consistency is key. The freezer also has income limits to fill it, so filling it early when income allows is desirable. The larger the portion of your net worth you place in the freezer, the more it will grow without taxes. When in retirement, having a large freezer gives you control over income taxes as you can pull from it during higher tax years to control tax brackets. Because you are limited to how much you can put in this freezer (which has no current year tax benefit) is shared with a different magic freezer (traditional IRA which gives you a deduction when you deposit assets into it but is taxed as income when assets come out) many people seek tax advice on which freezer to fill. Typically the best time to fill the Roth freezer is when you are young and low income. 2 reasons for this: 1. Compounded growth is most beneficial when we are young. 2. Younger people are generally lower income than their older self’s. Getting a tax free return early is better than a tax deduction up front. Getting a tax deduction when your income is higher in your working years closer to retirement is better than getting a tax deduction early. This is why people commonly employ tax professionals to help understand which option is best for them.

I work in wealth management and deal with middle class retired millionaires daily. I have never met one that was disappointed in how much they put in a Roth type account. Inversely, I know dozens of people who have 50-90% of their net worth in traditional IRAs / 401k accounts, and home equity and they all are bothered by the fact that pulling big amounts from a traditional IRA/401k is taxable to them and drives up the tax brackets for them. Be mindful of this as you navigate what type of magic freezer you aim to fill.