Roth IRA
Discover how a Roth IRA can maximize your retirement distributions while providing a valuable estate planning tool.
The Roth IRA is a type of Individual Retirement Account created in 1997 by the Taxpayer Relief Act, named after its sponsor Sen. William Roth, (R., Del.). Like other IRA accounts, the Roth IRA is simply an investment vehicle or holding account that manages your stocks, bonds, annuities, mutual funds and CD’s.
For many individuals, the Roth IRA provides a terrific tax break, especially for individuals previously shut out of a deductible IRA plan because their incomes were too high. The main advantage of the Roth IRA is that future withdrawals – including earnings and interest – are typically tax free once the account has been open for five years and the account holder is age 59 ½.
Like a traditional IRA, the Roth IRA is a tax-deferred retirement vehicle. Some of the key points and features include:
- substantially higher adjusted gross income limits (AGI), making the Roth IRA available to individuals with higher income limits
- contributions to the Roth IRA are not tax-deductible, meaning that typical IRA deductions to offset potential short term tax obligations cannot be made
- an outside IRA can be rolled over into a Roth IRA, providing that the tax liability on the rolled amount is paid in full, allowing you to gain and compound interest tax free for all future earnings within that account
- your are not restricted to certain investment options like the 401k
- if certain IRA guidelines are met, Roth IRA distributions are tax-free
While short term tax advantages for tax-deductible contributions to your IRA are not available with the Roth, the long term tax-free compounding of a Roth IRA is almost impossible to beat, as your retirement plan can continue to compound and all future withdrawals under certain guidelines are tax free. In the not so distant future, that can add up to a significant advantage over the traditional IRA, as well as the opportunity to pass on the Roth to heirs without them inheriting traditional income tax liabilities.
To get the most from your Roth IRA and retirement plan, make sure you consult with a qualified financial planner and retirement specialist. While the Roth IRA can be very attractive for younger investors as well, most people should always first take advantage of a 401k plan where the employer is matching all or part of your own contributions. That basic benefit can mean a great deal for principal accumulation, and you can always open a Roth IRA after your have achieved your maximum contribution or an effective balance.
Also make sure the financial institution that establishes your Roth IRA can provide an independent and wide range of financial options for your investment vehicles. Many organizations make available there own products only, or in the case of some banks can only offer certain types of money market products. Always ask for a comparative analysis of how different types of financial instruments could impact your retirement.
To learn more about the Roth IRA from an independent planner, request a personal interview, or call us toll free at 1-888-429-3070.
|
