What is Roth IRA?
The Roth Version is an investment retirement instrument. This version allows you to have an individual retirement account. It doesn’t matter what age you are; whether you are young or old you will most definitely benefit from this version. This account allows you as the investor to invest $5,500 in 2016 at any age, and if over the age of 50, you will be able to put an extra $1,000 away that will help with your catching up of contributions.
Retirement savings income and Tax
When deciding on investing in a Roth IRA, you can be sure that once you have retired you will have a tax-free income. The only catch is that when you invest your contributions, the tax will be deducted so that when you are ready to retire you won’t need to pay tax as it was deducted previously. You will, in other words, pay your tax on your contribution upfront. After years and years of savings that have built up, it will feel pretty good when you receive them without having to pay tax a second time. This way, you can pay it while you can afford it and reap your rewards when you are ready to enjoy those golden years!
Roth IRAs mean more flexibility
Opening up a savings account for emergencies is never as easy as it is in theory. There will always be some type of emergency that you will need the funds for and before you know it, all those savings will be depleted. Luckily for those that invest with IRAs, they can expect flexibility. Roth IRA can help you out with some quick money and it can be withdrawn any time you need it and you won’t have any penalties.
How does the IRA Flexibility work if I want to withdraw more than my contributions?
- You will need to be at least 59 ½ years old
- The account must be active for at least 5 years
- What happens if I don’t meet the requirements?
- If your account hasn’t been open for the appropriate time or you are younger than the needed age, there are, luckily, some special circumstances that come into play. These include:
- Buying a home for the first time if the purchase doesn’t exceed $10,000
- Secondary education expenses
- If you are suddenly disabled
- Taxes in arrears
- Being unemployed and you need to pay your premiums for your health insurance
- If you are 65 years or older you can pay 7.5% of any medical expenses that are unreimbursed during 2016. If you are younger than 65, it will be 10%.
No limit on contributing
A Roth IRA has no limit on your minimum distributions. As long as you are earning an income you can keep adding savings to your account regardless of how old you are.
Your children are looked after
Investing for your retirement isn’t just limited to you but to your children as well. You can leave them and their children with income that is tax free and they can use that for the rest of their lives. The Roth IRA allows you to pay the tax upfront for all your future generations.
Even high-income earners can contribute
Usually high earners wouldn’t be able to make use of Roth IRA, but now they can make their contributions first to the traditional IRA version and then they can convert that amount to Roth IRA. It will be a better idea to have a tax consultant do this for you as the conversion could be quite complicated.
The best decision you can make!
Roth IRAs are your best option if you want to reap the benefits of a tax free retirement. They’re also reliable if you want to ensure that you have a peaceful retirement and you can have peace of mind knowing that your children and grandchildren will be looked after when you are gone. You never know if the tax bill will be worse in a few years, so it’s best to take advantage of it now and not suffer later.
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.