Do you put a portion of your paycheck into savings? Does that savings account empty out when you see something amazing while you’re online shopping? When you have access to a bank account that offers quick, efficient transfers, it’s hard to save money for the future. That’s why it’s important to research account types that will keep your money safe (from yourself and others) and provide you with the funds you need when you grow old and gray. With that said, let’s talk about what Roth IRA’s are.
What Is A Roth IRA?
A Roth IRA is a type of individual retirement account that’s funded with post-tax money. Roth accounts provide tax-free growth and tax-free withdrawals, which is something we can all get behind. It offers versatility and tax-efficiency, however you have to meet certain requirements to qualify. Depending on the account type you choose, it can include capped contributions and income limits. So, talk to your local bank about setting a retirement account up after doing some research of your own. Nonetheless, let’s dive into the reasons you should get one of your own.
Tax-Free Growth
One of the best benefits of a Roth IRA is that the money you invest is tax-free while it grows. You don’t have to worry about reporting investment earnings (the money your money makes) during tax season. However, if you invest in a non-retirement account, your earnings are subject to federal and state taxes every year.
Tax-Free Withdrawals For Retirement
Everyone wants a piece of your earnings. Your Social Security and Medicare taxation is based on your income. Although, at the age of fifty nine and a half, you can withdraw your money without any penalties or taxes, so long as you’ve had the account for at least five years. Good deal, right?
Everyone wants a piece of your earnings. Your Social Security and Medicare taxation is based on your income. Although, at the age of fifty nine and a half, you can withdraw your money without any penalties or taxes, so long as you’ve had the account for at least five years. Good deal, right?
You Choose When To Withdrawal
A Roth IRA doesn’t have a “lifetime required minimum distribution,” unlike a Traditional IRA. You’re able to withdraw on what you’ve contributed any time. However, if you withdraw earnings before the age of fifty nine and a half, then you’ll have to pay a penalty and taxes. So, it’s best to leave it alone and let it generate returns on its own.
Additional Tax Credits
You may qualify for the “Retirement Savings Contribution Credit” or “Saver’s Credit” during tax season. It depends on your current income and how much you’ve contributed to your retirement account. However, if you do qualify, you’ll get a nice tax break. Who wouldn’t enjoy that every year?
You may qualify for the “Retirement Savings Contribution Credit” or “Saver’s Credit” during tax season. It depends on your current income and how much you’ve contributed to your retirement account. However, if you do qualify, you’ll get a nice tax break. Who wouldn’t enjoy that every year?
Backdoor Roth IRA Conversion
If your income is too high for a Roth IRA, you could get into the Roth through the “back door.” You make non-taxed contributions to a Traditional IRA (this account doesn’t have income limits) and use a “Roth Conversion.” This is a permanent move, though, so discuss it with your tax advisor first.
Beneficiaries Aren’t Taxed
Those who inherit your Roth IRA won’t have to pay income tax on their distributions, but they will have to abide by RMD’s or “required minimum distributions." Of course, your account has to be at least five years old for them to be able to access it.
Those who inherit your Roth IRA won’t have to pay income tax on their distributions, but they will have to abide by RMD’s or “required minimum distributions." Of course, your account has to be at least five years old for them to be able to access it.
You Can Invest In A Roth IRA And 401(K)
You don’t have to pick one or the other when it comes to retirement options. You can contribute to a Roth IRA and 401(K), so long as you meet the contribution and income limits. A winning combination in our opinion. You’ll be sitting pretty during retirement with these two accounts at your side.
Many Options To Pick From
Roth IRAs offer a ton of options to pick from when investing. You can choose low-cost mutual funds, ETF’s (exchange-traded funds), or individual stocks, bonds, and funds from other companies. There’s a lot to think about, so research what you can, then speak with a financial advisor before making any moves.
You can create a retirement account at any age. Sometimes it takes a couple of decades before you can catch up with the bills that come with surviving day to day. Other times, you’re lucky enough to begin saving in your early twenties. No matter what kind of retirement account you choose, though, save your money for the future. You’ll thank yourself later on when you’re able to retire comfortably. With that said, we wish you luck with your future ventures and hope that your retirement earnings grow rapidly.
Roth IRAs offer a ton of options to pick from when investing. You can choose low-cost mutual funds, ETF’s (exchange-traded funds), or individual stocks, bonds, and funds from other companies. There’s a lot to think about, so research what you can, then speak with a financial advisor before making any moves.
You can create a retirement account at any age. Sometimes it takes a couple of decades before you can catch up with the bills that come with surviving day to day. Other times, you’re lucky enough to begin saving in your early twenties. No matter what kind of retirement account you choose, though, save your money for the future. You’ll thank yourself later on when you’re able to retire comfortably. With that said, we wish you luck with your future ventures and hope that your retirement earnings grow rapidly.