7 Reasons to Consider a Roth IRA for Retirement

Saving Money with Roth IRA - BP Financial

Though the thought of reducing taxes with a Traditional IRA is alluring, some people may benefit by contributing to a Roth IRA that offers no immediate tax break, but has other tax advantages.

Roth IRAs offer tax-free growth potential and tax-free income during retirement, making them a good choice for long-term planning.

Unfortunately, IRS contribution rules limit the amount investors can add to their Traditional or Roth IRAs. For 2015, 2016, and 2017, your total contributions to all of your IRAs cannot be more than $5,500 (if under 50) or $6,500 (if over 50).

Despite its limitations, Roth IRAs offer many key benefits that make them ideal for some investors. Consider the following when deciding where to invest your money:

1. You don’t have to pay taxes on earnings

Although you won’t get a tax break today, any earnings you acquire in a Roth IRA will grow tax-free.

2. Distributions are usually tax-free

You can also take money out of your Roth IRA, so long as you meet certain requirements. With a Roth IRA, your income is protected from future tax increases.

The requirements for taking out tax-free distributions include:

It is made 5 years after the first taxable year of your Roth IRA

The distribution is:

  • Made on or after you turn 59 ½
  • Made because you are disabled
  • Made after your death to a beneficiary or your estate
  • Made meeting the requirements of a “First Home” (up to $10,000 lifetime limit)

3. There’s no minimum requirement for distributions

With a Roth IRA, you’re not forced to take out a certain amount every year.

If you want, you can leave the money until you die and pass it along to a beneficiary, a perk you don’t have with a Traditional IRA.

Traditional IRAs have required mandatory distributions, which can have costly penalties.

4. Take an early distribution without penalty

If you need money before you’re 59 ½, you can use your Roth IRA without penalty in certain situations.

These include:

  • Higher education costs
  • Qualified home purchases
  • Unreimbursed medical expenses

5. Improve your tax diversification

A Roth IRA allows you to “tax-diversify” your portfolio, meaning you include taxable, tax-deferred, and tax-free accounts. These different types of accounts offer different benefits, including:

  • Taxable Accounts: Immediate access to funds. The money has already been taxed.
  • Tax-Deferred Accounts: Good for a tax break today, but there may be penalties if you withdraw money before retirement.
  • Tax-Free Accounts: Good for a tax break tomorrow. These accounts, including the Roth IRA, invest your after-tax dollars, but your earnings grow tax-free, and contributions are typically tax-free.

6. Open an account at any age

You can begin retirement planning at any age with a Roth IRA. In fact, you can even help a child or grandchild get started by funding one for them, so long as they work.

7. Contribute as long as you work

Traditional IRAs require you to stop making contributions at age 70½ (when required minimum distributions begin), but that is not the case with Roth IRAs. As a result, Roth IRAs provide important legacy and estate planning advantages.

Let Brett Pittsenbargar Help You Decide if a Roth IRA is Right for You

Thinking about setting up a Roth IRA, but not sure if it’s right for you?

Contact Brett Pittsenbargar now to see how he can help you plan for financial success.

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