The subject of ROTH IRA is most likely to come up when you talk to your financial planner, investment advisor or any friend- it is in the news right now and people are in love with it. But, wait! Do you even know what a ROTH IRA is, or why people are in love with the idea of it? If not, do not worry, before getting in to a deep conversation about ROTH IRA, let us check out the basics.
Basically, a ROTH IRA is a retirement savings account in which all your taxes have been already paid. This means you fund a ROTH with after-tax dollars. Isn’t it great? No need to pay the taxes after your retirement, because it is all well taken care of.
ROTH IRA has so many benefits over the traditional IRA, to begin with, you will be able to withdraw all your contributions and savings tax free. But, of course not everyone opts for ROTH IRA, because they do not qualify for it. However, we cannot contradict with the fact that this seems a very attractive retirement vehicle. Therefore, knowing the secrets of ROTH IRA is very important.
- You can withdraw your money whenever you want: you might have heard people saying you cannot withdraw your money before you are 59.5 years old, well, with ROTH IRA you can, but that does not mean you should. But, yes, considering the fact that you are in need of it, you can, otherwise it is better not to because this way your earnings will fall drastically.
- A ROTH IRA is not open for everyone: if you think ROTH IRA is the ideal retirement account for you, do not rush, it is not for you if you earn six-figure salary or more.
- You can get a tax credit for contribution: if you open up a joint ROTH IRA account, you will receive free credit. For example if you and your spouse earn less than $36000, you can receive a credit of 50% in 2015 and so on.
- You can withdraw your earning penalty free under some circumstances: your earnings are yours and you can withdraw them anytime, but the good news is you do not have to pay penalties if you’ve had an IRA for more than 5 years. These withdrawals are called,’ qualified distributions’, and are penalty free. But, be aware of other IRS rules. It is advisable to talk to a tax professional before withdrawing your money.
- The government cannot force you to withdraw your money: unlike the traditional IRA, you do not need to withdraw money without your will because you are 70+, and the government won’t force you. As long as the owner of the account is alive, there is no RMD (i.e.: required minimum distribution).
Although ROTH IRA is not for everybody, but if you qualify for it, I bet this will be the perfect retirement account for you and your spouse. This is the topic of conversation around; impress your family and friends about these facts, if they do not know already.