If you are currently looking into how to save for your retirement for the first time then you will quickly see that there are a lot of options out there for you to choose from. One of the most popular and safest choices is to invest in a Roth IRA and this article will briefly look at the advantages of doing so.
The first thing to note is that even if you have already begun making contributions to your own company’s 401K you can still add a Roth IRA to this to get some extra taxation flexibility when it comes to withdrawing from your fund. Because you will have already paid taxes on the any money that you have contributed, you will be able to withdraw money free of tax and this will in turn help you to minimize any taxes on your 401K. But there are many other benefits than this – here are five of the most important:
You Can Use Roth IRA’s to Provide Funds for your First Property –
With a Roth IRA you are permitted to withdraw some of your invested earnings, but only once and for a good reason such as buying your first home. If you wish to raise the money for a deposit on that first home then you are allowed to take out up to $10,000.
You Are Able to Take It All At Once –
Most retirement accounts have all kinds of regulations and provisions that prevent you taking your money as you wish it. The Roth IRA however, allows you to take all of that money out at once, whenever you wish, without incurring any penalties. The gains on investments will always be subject to their own rules but the principal that you pay in is yours whenever you might want it. So if you were worrying about tying your money up in case of emergencies, you can be assured you will be ok.
No Taxes on Your Dividends –
You will not be required to pay tax on any dividends you might be paid on a security or stock held in your Roth IRA. This is significant as it could potentially cover thousands of dollars that you don’t have to pay taxes on.
Death and Taxes –
Unlike other retirement funds the Roth IRA doesn’t dissipate upon your death. Instead, if you or your spouse or partner were to die it is permitted to roll the 2 Roth IRA’s, penalty free, into one combined IRA.
401K and Inheritance –
Similarly it is easy to pass on the money within the Roth IRA to your heirs without them paying penalties. This makes it a good way to pass your money down.
The Roth IRA is a great retirement fund and there are too many advantages to list here. The only point to remember is that not everyone is permitted to contribute to Roth IRA’s. Though they change the rules all the time, currently you are not permitted to contribute to one if you are either single and earning over $125,000 or married and earning more than $183,000.
Esther is a financial writer and blogger. She writes about issues affecting the consumer from mortgages to investments to tax reductions and payday loans.