Consider Roth IRA Benefits That Allow Tax-Free Growth

A Roth IRA is a qualified retirement plan that encourages you to save for the future. There are advantages of investing in a Roth IRA that permit tax-free growth and withdrawals. Consider the Roth IRA benefits for growing your nest egg with options to defer income taxes.

To determine if it’s best for you, consider your tax bracket at the time you plan to withdraw the funds. If you expect your tax rate to be the same or higher, you should choose the Roth.

Convert To A Roth IRA

The IRS allows you to convert traditional IRAs to Roth IRAs if you meet certain conditions. You will have to consider the Roth IRA benefits in the cost of tax payments vs. the additional contribution allowances. Beginning in 2010, the income limits and filing status of single or married filing jointly will be eliminated. This allows many people to see if the benefits of a Roth IRA conversion would outweigh the expense

Roth IRA Contributions

IRA contributions must be made from earned income sources such as salary, commissions, and tips. The contribution limits are $5,000 per year and must be made by April 15th for the preceding calendar year. From 2009 and onward, the amount you can contribute will increase in relation to the inflation rate. However, adjustments are made for those who are over the age of 50, allowing them ample opportunity to catch up. These Roth benefits are great for those who were late to retirement planning.

Roth IRA Distributions

Unlike a traditional IRA, taxes are not paid on Roth IRA distributions. Since the income is taxed prior to putting it into an IRA, the money cannot be taxed twice. Therefore, distributions from a Roth IRA are not considered taxable income.

If you will be in a higher tax bracket after retirement than you are now, this makes distributions one of the biggest Roth IRA benefits. You also do not have to pay capital gains taxes on withdrawals like you do with other savings products, which can save you even more on distributions.

Avoiding Penalties

Funds must stay in the Roth IRA for a minimum of five years and even longer for it to be effective. One of the benefits of investing in a Roth IRA is the early withdrawal penalty can be waived if the funds will be used to pay for educational expenses, disability, or for first time home buyers.

You may also withdraw the contributions you have made into the account at any time without fear of penalties. You might also consider a Roth IRA for the advantages in passing to beneficiaries with no tax liability after death and control of assets past age 70½.

Flexibility In Investments

Another one of the many Roth IRA benefits is that you can invest in many different types of products. A Roth IRA account may include stocks, mutual funds or certificates of deposit. Most participants use mutual funds to build their investment portfolio. There are a variety of other types of investments that can be included as well. If you are knowledgeable in investing you can do it yourself with a self-directed Roth IRA, but it is recommended to use a financial advisor.

There are many Roth IRA benefits to consider when you are weighing your retirement options. For many people, the Roth IRA is the preferable way to save for the retirement years.