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4 In Career/ Personal Finance

5 Benefits to Having a Roth IRA That Will Make Save You Big

5 Reason you need a roth ira

Let’s be honest, no one likes to think about planning and saving for retirement. The thought of putting your hard earned money away to an account that you cannot touch until you are 65 isn’t a desirable concept, but it’s oh so very necessary! You have to find a financial balance within your retirement account for it to grow. A Roth IRA could be the best tool in your retirement portfolio and you may not even know it.

Whether you are new to retirement saving or a seasoned veteran, a Roth IRA can be a welcomed addition to your portfolio.  Along with your 401(K)  and traditional IRA, this account will allow for increased flexibility with your current retirement planning.

What is a Roth IRA and Why is It So Special?

A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

Tax- Free Growth

This plan sounds pretty simple, right?  Well, that is because it is. Roth withdrawals in retirement are tax-free, unlike payouts from traditional IRAs, which are taxed at your top tax bracket.  This benefit is the perfect incentive for young savers. With a Roth, you will not be subject to the higher tax rate on your withdrawals if you are working after 59 1/2. Other than growing TAX-FREE, having a Roth has some other serious benefits.

Penalty Free Withdrawals (Generally)

Most retirement plans penalize you for making any withdrawals before retirement but, this is not the case with a Roth. You can withdrawal your contributions, if you need, at any time without paying taxes or penalties.  The earnings in your account, meaning the money your money has made for you, must remain there for at least five years or until you are 59 1/2, or it will be subject to penalty and tax.

First Home Withdrawals

In addition to the ability to withdraw all your contributions after five years, if needed, you can also withdraw for a new home. Up to $10,000 of your earnings can be withdrawn without penalties or be subject to tax if you are using the money to buy your first home.  This incentive is a benefit that could come in handy.

 Contribution Flexibility

Unlike most 401(K) retirement plans which mandate that all contributions have to be made by the end of the calendar year, you have until Tax day of the following year to make your contribution. Meaning any money you put towards your $5,500 contribution limit before April 15th, can be applied to your account for the prior year.

Take It or Leave It

With a traditionally IRA or your 401(K), you must start your retirement distributions by age 70 1/2. A Roth IRA will allow you to keep your money in your account as long as you like. If you never decide to take a distribution, you can Will your funds to an heir, and they can withdraw tax-free distributions. The only caveat is that the heir must start annual withdrawals or RMD, the death year of the account holder.

Find out if a Roth IRA is right for you, take the quiz here.

Bonus Tip –

Because the contributions to you Roth IRA are an after-tax deposit, you can open an account at any time. I started my Roth when I was just 17 years old and it has been growing ever since. The earlier you start the better, to allow for maximum growth.

Have tips or questions about saving for retirement, let me know in the comment section below.

 

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4 Comments

  • Reply
    Matt Sherman
    November 24, 2014 at 12:22 pm

    Roth IRA’s seem like a great idea, but with the propensity of the federal government to change policy on a dime how likely do you think it is that they come in later and tax them anyway? Especially considering the fact that more and more people will be coming into the social security system that has no money saved up for them, and a federal government that seems to not want to balance its own budget.

    I’m not asking this question to be difficult or obnoxious, I’m just honestly looking for your opinion to the question, do you think the federal government will end up actually taxing this money anyway because they need more tax revenue in the future?

  • Reply
    busywifebusylife
    November 24, 2014 at 12:35 pm

    Thanks Matt for the question. I do understand that our government has the propensity to mismanage budgets on a quite regular basis, especially with regards to retirement funding. But unlike most other retirement plans, the key part of the Roth IRA is the government as already taxed the contributions from your paycheck. All contributions you make to the account are post-tax contributions. The only way the government would be able to make more money from this type of retirement tool is to raise the income tax, which would affect more than just your Roth IRA. I think it is a safe bet that things will continue as the way it was established.

    Let me know if you have any other thoughts or comments!

  • Reply
    Aja @Principles of Increase
    April 30, 2017 at 4:31 pm

    This is a good post. I have an IRA that I’ve let sit around for a while. I need to get back to contributing. Thanks for the breakdown!

    • Reply
      Sherita Rankins
      May 12, 2017 at 11:04 am

      Great – Aja! So glad you enjoyed the post. I think so many of us forget about retirement or don’t make it a priority, happy saving!

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