When Should You Consider Contributing to a Roth IRA

Posted on Jan 23, 2017

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Difference between Roth IRA and Traditional IRA

Hesitant about contributing your hard earned cash to a Roth IRA?

There are a number of plans that will help you build your retirement savings that can ensure that you will enjoy a comfortable life in your golden years. Some of these plans include 401(k), traditional IRA, Roth IRA, etc. It is fairly normal to get confused regarding where to contribute your hard earned money. In this article, we will be focusing on five situations where contributing to a Roth IRA would make sense for you.

If You Still Have a Long Career Ahead of You
If you have recently begun your professional career, it means that your income will grow through the years to come and will eventually put you in a higher marginal tax bracket. Now, all the distributions from Roth IRA are tax-free and they won’t count toward your income during retirement. Roth IRA would be a great idea if you expect to be in a higher tax bracket when you turn 60 as compared to when you are in your 20s or 30s. Regardless of how much you withdraw from the Roth account, you won’t be pushed into the higher tax bracket after you retire.

If You Think the Tax Rates will Rise
If you think that the tax rates will shoot up in the near future, you should start making preparations to create a Roth IRA account. It isn’t uncommon for the U.S Congress to boost revenue to clear the debt by hiking the tax rates across the board. If you contribute to Roth IRA, you can enjoy the benefits of taking out tax-free contributions and cushion yourself from the uncertainty of the tax future.

If You don’t Like RMDs
You need not take RMDs (Required Minimum Distribution) in Roth IRA, which differentiates it from 401(k)s or traditional IRAs. There will be occasions where you wouldn’t need an annual distribution but with 401(k) and traditional IRA you would still have to withdraw the minimum amount. This isn’t the case with Roth IRA. You can allow your IRAs to grow for as long as you want without withdrawing any money. Additionally, you can make the withdrawals in any increment as they will have no effect on modified adjusted gross income.

If You Want to Access your Cash in Case of an Emergency
Roth IRA allows you to have financial flexibility by ensuring that you have access to cash in any case of emergency. As the contributions are made with after-tax dollars, you can remove them at any time, for any reason, without paying any penalty or tax.

If You want a Tax-Free Income for your Family and Heirs
If you are looking forward to passing along your tax-free money to your heirs upon your passing, then Roth IRA would be a great option to consider. Your assets will compound through the years and your beneficiaries would be left with a sizable inheritance, which they can withdraw without paying any tax on it.

If you need any help with retirement planning, get in touch with us SD Retirement Plans today!

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