Did you know more individual retirement account options exist than the traditional IRA? The term “traditional IRA” may sound familiar because it’s the original IRA type. But over time, retirement fund alternatives like Roth IRAs have become popular.
If you’re asking yourself, “What is a traditional IRA?” or, “What is a Roth IRA?”, keep reading. Because there are unique benefits of Roth IRAs you need to know.
Traditional and Roth IRAs are similar in many ways. Both types of IRAs provide savings for retirement. But their differences include when your funds get taxed and when you can access them.
This article informs you of 5 key benefits of Roth IRAs. And the information contained could help you decide how to save for retirement.
1. Tax-free Withdrawal
Would you rather have a tax deduction now or a tax-free withdrawal later? Some people choose the tax deduction to lower their adjusted gross income (AGI). While others prefer a taxed contribution now for access to tax-free withdrawals at retirement.
Like anything involving your finances, it’s a personal decision only you can make.
2. No Required Minimum Distribution
With a Roth IRA, there’s no mandate on when you need to withdraw money from your account. Required Minimum Distribution (RMDs) rules exist for employer-sponsored plans and traditional IRAs. And they determine how much of your funds you must withdraw upon reaching retirement age.
Beginning on April 1 of the year you reach retirement age, you must withdraw the amount set by the RMD. And you must continue to withdraw the required amount set by RMD every year thereafter.
3. Provides Greater Inheritance
Your heirs deserve to receive the full benefit of your retirement savings. And Roth IRAs remain tax-free to beneficiaries. But beneficiaries must pay close attention to the fine print for inherited Roth IRAs.
Heirs can continue to make contributions to your Roth IRA account. And for as long as the account exists, they can also receive tax-free distributions.
4. Penalty-free Withdrawals
Distributions upon retirement aren’t your only tax-free benefits of Roth IRAs. You can make tax- and penalty-free withdrawals of your contributions at any time. But notice, you can only withdraw what you’ve contributed, not what you earned.
5. No Age Limit
If you earn income from employment, you can contribute to a Roth IRA regardless of age. Guidelines dictate how much you can contribute based on your income. And if you’re over 50, you can contribute a little more than younger workers.
If your income exceeds the limit, you may still have a way to open a Roth IRA account. Check out the Wealthability audible for some insider information.
Could The Benefits of Roth IRAs Help You?
Hopefully, by now you understand how to choose from the different types of IRAs. You can’t deny the benefits of Roth IRAs. You work hard for your money and deserve to relax upon retirement while your money works for you.
This site offers more than information on how to choose an IRA. If you found this article helpful, scan our many trends reports on managing finances.