Why You Should Open a Roth IRA
To open a Roth IRA is one of the most intelligent things you can do in relation to retirement planning especially if you are a wage earner and fall within the middle income range. This type of retirement account offers you a greater amount of financial flexibility than you have with either a 401K or traditional individual retirement account.
Roth IRAs Offer Tax Advantages for the Retiree
You may balk that this type of retirement account is not tax deductible but you won’t recoil at the notion when you receive your future distributions because all income you receive at that time is totally tax-free. It certainly stands to reason that you’ll appreciate the benefit of not paying taxes especially at that time in your life. Therefore, once you fund your Roth account, you don’t have to worry about paying any income taxes again.
Rollover your 401K into a Roth IRA
If you lose your job, you can choose to rollover the funds in your 401K to a Roth. This can be easily accomplished if you do so within 60 days of distribution. With a Roth in tow you can continue paying into the account until the time you choose to take distribution. Therefore, unlike a traditional IRA, which requires that you take out the funds and stop paying into your account at 70 ½, you can continue investing in a Roth until you choose to take distribution even if you’re, say, 80, at the time you start withdrawing funds from your account.
Savings Opportunities
Of course, there are some rules you must be aware of if you choose to open a Roth. For one thing, you can’t take out any distribution until your 59 ½ and must hold the account for at least five years if you want to avoid the tax penalty which is ten percent of the amount you choose to withdraw. This is a retirement investment that definitely encourages people to save for retirement no matter how old they are. For example, if you are under 50 years old, you are allowed a contribution up to $5,000 per year for a Roth account. If you’re over 50, the contribution limit is $6,000. The government makes an allowance of an extra $1,000 so an older individual can “catch up”. As long as your earned income exceeds the contribution limit, you can contribute to a Roth IRA.
Roth IRA Guidelines
If you currently have a traditional individual retirement account, you can convert to a Roth account as long as your adjusted gross income isn’t any more than $100,000 annually. However, if you’re married and file taxes separately from your spouse, you aren’t allowed to make such a conversion. In such a case, it probably would be best to go through a broker, set up a separate Roth account and contribute independently.
Roth IRA Contributions
With respect to retirement, you can build a sizeable amount of wealth with a Roth account. Not only are there any age limitations for contributing to such an account, you can contribute, as stated, for as long as you want. Therefore, you don’t have to worry that your contributions will have to stop a little past your 70th birthday. As long as you continue to earn wages, your contributions are ongoing. Nevertheless, don’t assume that the monies you contribute can include social security payments or the money received from a pension. All Roth contributions must be wages that are earned.
Income Limits in Regards To Roth IRAs
The income limits change each year for a Roth so you should check with the IRS to keep up-to-date. As of this writing, if you are a single, head of household or married and filing separately and didn’t live with your spouse, you can contribute as long as you didn’t make over $120,000 for the year. If you’re married and filed separately but lived with your spouse, then $10,000 is the income limit. Any joint married filers can make up to $176,000 to meet eligibility requirements.
As you can see, you are at quite an advantage if you’re a middle income wage earner and secure a Roth in order to save for retirement. Check with a broker or financial advisor. A Roth is well-tailored for most people in the workforce who are concerned about obtaining the best account for their future retirement needs. Using the above it should be obvious why you should consider taking the time to open a Roth IRA.