When money is first invested in a Roth IRA, it is federally taxed based on the tax bracket one currently inhabits. When money is taken out of the Roth IRA, however, funds up to the amount put into it are always federal-tax free, and often the entirety of the funds are free from federal taxes.
A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement arrangement. However, it differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.
To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.
Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.