When it comes to saving for retirement, our choices can be a bit confusing. There are numerous types of investments to choose from. And there are several different types of accounts that are designed specifically for retirement savings. To someone who hasn’t done much investing, the choices can be overwhelming.
If your employer offers a 401K plan as part of your benefits package, it could make your choice a little easier. But some people do not have access to a 401K, and others need to save more for retirement than a 401K plan will allow. In both situations, a Roth IRA is worth considering.
A Roth IRA is a special kind of Individual Retirement Account. There are some restrictions on who can get one, but it offers a number of significant advantages. These include:
* The earnings are not only tax-deferred, they’re tax-free as long as you withdraw after contributing for five years and reaching the age of 59 ½. With a traditional IRA, you would pay tax on the entire amount you withdraw, and could be subject to penalties for early withdrawal.
* Direct contributions can be withdrawn any time without incurring taxes or penalties. This does not include contributions made by rolling funds over from a 401K, traditional IRA or other retirement account.
* You can withdraw up to $10,000 in earnings to put toward a home if you’re a first-time home buyer, without being taxed. You can even withdraw that amount for a spouse, direct ancestor or direct descendant who is buying a first home – without incurring taxes or penalties.
* Account holders are not required to take distributions at a certain age. While most retirement plans require that withdrawals begin no later than age 70 ½, you can leave money in a Roth IRA as long as you like. You can even leave it all to your heirs if you like.
* There is no age limit for contributions. For most retirement plans, contributors must be under the age of 70 ½. But with the Roth IRA, you can make contributions for as long as you have earned income.
In order to qualify for a Roth IRA, your income must be below certain limits depending on your filing status. If you do not qualify for the full contribution amount (currently $5,000 per person under age 50 or $6,000 per person age 50 or over), you may still qualify to make a partial contribution. Limits may change from year to year, so check with your financial institution.
If you’re looking for a way to ensure a comfortable retirement, a Roth IRA could be just what you need. It doesn’t complicate your taxes, and you’ll have a great deal of flexibility when it comes time to withdraw your money. Talk to your financial advisor to see if a Roth IRA is right for you.
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