Increase your earnings and still save on tax – that sounds pretty unbelievable, right? When you opt for Roth IRA, that’s just what you get, especially if you are smart, invest at the right time and handle your investments wisely. It’s easy to see how investing in a Roth IRA can make your retirement easy for you and your heirs, without the burden of paying taxes.
Let’s look at some of the benefits that make Roth IRAs so attractive:
- Tax-Free Funds: Not only do Roth IRAs offer tax-free growth potential, but tax-free withdrawals too. Since you are going to contribute money that is already taxed, you are not paying any federal tax when you invest, nor when you withdraw at the specified time (you should be 591/2 and the fund should have been invested for at least 5 years.
- No Minimum Required Distributions (MRD): When investing in a Roth IRA, there is no Minimum Required Distribution (MRD) or Required Minimum Distribution (RMD), unlike 401Ks and traditional IRAs. Keeping track of MRDs can be tiresome, they may cause your income to be taxed, and missing a withdrawal may cause a penalty (50% of the MRD not taken).
- Estate Planning Benefits: Due to the No MRD criteria, earnings can always be left to your heirs in the family.
- Diversification from Income tax: When you retire and have put money into a variety of investments through your working life, you could have earnings coming in from different avenues, which could up your tax bracket. So that’s when it becomes worthwhile to have some income that can be withdrawn without paying tax on it.
- Helps Avoid Medicare Surtax: When you conduct qualified withdrawals from a Roth IRA they don’t count toward the modified adjusted gross income (MAGI) threshold that either reduces or avoids the Medicare surtax.
- Protects against Future Tax Hikes: Since you have already paid tax during the contributory stage, and no federal tax is applied during withdrawals, investing in a Roth IRA protects your savings against future tax hikes.
- Convenient Withdrawals: If you wish to withdraw in an emergency before the age of 591/2, go right ahead, ho i always withdraw your principle because it has already been taxed. If you withdraw more than your contributions and invade your earnings the excess can attract penalties and income tax.
- Ageless Contributory Fund: When you invest in a Roth IRA, there is no age bar, unlike the traditional IRA, where you cannot contribute if you are older than age 70½ even if you have earned income.
- Investing Young Gives You More in Retirement: Investing young in a Roth IRA will help you earn more when you retire, and since (given inflation rates) your spending will also be more, Roth IRA benefits can be really helpful.
- Offers Financial Flexibility: Roth IRAs can help in both investments and contributions other than retirement, without paying taxes on withdrawals. For example, you can squirrel away money into a Roth IRA fund to save for a child’s education, or use the withdrawal option from your earnings and contributions of $10,000 for down payment for a house if you are a first time buyer, and although not ideal it can also be utilized as a last-option emergency fund.
When you have these 10 amazing reasons to use Roth IRA investments as a means to grow your wealth, this option should definitely be considered when planning for your retirement!
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Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.