6 Tax Advantages of Roth IRAsDavid Macino
Any type of retirement investment plan will come with tax stipulations, and many people deal with withdrawal penalties and taxable income from their investments after they retire. Roth IRAs include many tax benefits that can help prevent some of the unfortunate stipulations that many other plans have in place.
Roth IRAs do not tax income in retirement, for either contributions or earnings. You do, however, have to pay income tax on contributions upfront. Roth IRA users can also add after-tax money at any time and withdraw principal and earnings without taxes on retirement.
Unlike the traditional IRA, a Roth IRA can be helpful at any moment because a user can withdraw cash without any penalties at any time. Financial experts generally do not encourage withdrawing money before retirement, as the more you can keep in the account, the more comfortable you will be when you retire. However, in an emergency, you can take out contributions.
If you want to take out more than just the contributions, you must be at least 59 and a half years old. Additionally, your Roth IRA account must have been open for more than five years. There are a handful of exceptions to these stipulations including:
- Buying your first home
- Postsecondary education
- Permanent disability
- Unreimbursed medical expenses that are more than 10% of adjusted gross income
- Back taxes
- Payments for health insurance premiums while unemployed
Along with the ability to take out contributions at any time, you can invest your Roth IRA in almost anything, such as lifecycle funds, individual stocks, or index funds.
Unlike a traditional IRA, a Roth IRA gives you the ability to continue contributing after you have turned 70 and a half years old. The Roth IRA also has no minimum distribution requirements so you are never required to begin using your Roth IRA money.
Benefits for Your Descendants
People who have substantial Roth IRA accounts can leave some tax-free income for their descendants that can be used over their lifetimes. You can pre-pay taxes for your heirs, a huge advantage that may seriously benefit your family.
People with Large Incomes Can Still Contribute
Though people who earn above a certain income cannot directly contribute to their Roth IRA, there is another option. Such individuals can make a nondeductible contribution to a traditional IRA account and then convert it to a Roth.
Great Long-Term Option
The Roth IRA is an ideal long-term option. Though traditional IRAs are better for immediate tax relief, Roth IRAs will give the user a better financial situation for his or her retirement.
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