3 Benefits of a Roth IRA

Posted October 14, 2008 by Bernz

What’s a Roth IRA? It’s an individual retirement arrangement (aka retirement savings account) you fund with after-tax dollars. The money you contribute goes into your account and continues to grow without you having to pay any tax related costs. In other words, when the time comes for you to make a withdrawal, every cent you take out goes back into your wallet.

Part of what makes Roth IRAs so appealing is its tax-friendly quality. But there are 3 major benefits of a Roth IRA:

• You can contribute money regardless of your age and for as long as you like

• You can leave the money in the account without having to make minimum monthly withdrawals (something you must do with traditional IRAS)

• You can withdraw money whenever you want for any reason (but if you’re younger than 59½ you’ll face early withdrawal penalties unless you can prove you have a qualifying reason such as college tuition, medical expenses, or a first-time home purchase).

Thinking of starting a Roth IRA? If so you’ll need to make sure you meet these taxable income guidelines:

1) If you’re single or didn’t live with your spouse during the previous year, or if you’re head of household and your annual earnings are less than $116,000.

2) If you’re married and file joint income tax returns and annual earnings are less than $169,000

3) If you’re married, file separate returns and lived with your spouse the previous year, and your annual earnings are less than 10,000.

Should you choose a Roth IRA over a traditional IRA? If you don’t meet the Roth IRA income qualifications, then the selection has been made for you. Otherwise you’ll need to consider whether you’ll be in a low or high tax bracket when you retire, which can be tough to estimate if retirement is well off. A good rule of thumb is to have both tax and tax-free savings accounts so that when you cash out at retirement you have more funds going to you and less going to the tax man.

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More on this topic (What's this?)
Market In A Free Fall, I’m Sitting Put, Ready To Inject More Money On January 1st (, 10/9/08)
Why You Should Have a Roth IRA (Learn Financial Planning, 8/18/10)
The Facts of Life (Financial Armageddon, 8/20/10)
Read more on Roth IRA, Retirement at Wikinvest

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One Response to “3 Benefits of a Roth IRA”

  1. Why you Should Have a Roth IRA | Invesmint Says:
    October 18th, 2008 at 9:28 am

    [...] 3 Benefits of a Roth IRA [...]

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