|
The Roth IRA turns what we normally know and understand about tax-deferred savings incentives on its head. This Individual Retirement Account choice has many advantages but you also need to understand its disadvantages before you decide it is right for you. Unilke a traditional IRA, the Roth IRA allows no deduction for contributions, but instead provides a benefit that isn't available for any other form of retirement savings: that is, all earnings are tax free when you or your beneficiary withdraw them, if you meet certain requirements. Other benefits include avoiding the early distribution penalty on certain withdrawals, and avoiding the need to take minimum distributions after age 70½. So which IRA is better for you? Numerous factors should be considered including your tax bracket, your current earnings and future earnings potential, your age, etc. All in all, you can do lots of complex analysis, but the bottom line is that most people are better off investing their retirement savings in a Roth IRA. The primary reason is that the Roth IRA is effectively bigger than a regular IRA because it holds after-tax dollars. If you can take advantage of this feature of the Roth IRA by maximizing your contributions you'll add greater tax leverage to your retirement savings. Two other significant advantages favor the Roth IRA. First, minimum distribution rules don't apply. If you're able to live on other resources after retirement, you don't have to draw on your Roth IRA at age 70½. That means your earnings continue to grow tax-free. The other advantage is the ability to take certain early distributions without paying the early distribution penalty. In short, the Roth IRA makes it easier to keep your money in, and also easier to take your money out. You are eligible to contribute to a Roth IRA if you or your spouse has compensation or alimony income equal to the amount you contribute, and your modified adjusted gross income does not exceed $95,000 for single individuals and $150,000 for married individuals filing joint returns (maximum contribution). The amount you can contribute is reduced gradually, and then completely eliminated, when your modified adjusted gross income exceeds $110,000 (single) or $160,000 (married filing jointly). Additional Roth IRA information can be found at:
|
Roth IRA
