The future is uncertain, but we could always minimize the negative variables by planning ahead. One of the best ways of planning for your future is by getting a retirement plan. Aside from an insurance plan, a retirement plan can help support you when you’re older and no longer physically capacitated to work. But, don’t jump in and subscribe to just any retirement plan you can find. Choose wisely and make sure that you’re truly gaining from your investment.
Roth IRA is one of the retirement plans that has been widely subscribed to by Americans. Compared to traditional retirement plans, this plan is tax-free provided as you comply with various conditions.
What is a Roth IRA?
Roth IRA is short for �individual retirement account’ and it offers tax-free withdrawals and growth. The current limit for the contributions under this account is $7,000 for filers who are 50 years old and above, $140,000 for single filers, and $208,000 for joint, married filers. Individuals ageing 59 years old and 6 months and beyond that hold IRAs for five years are permitted to withdraw their money without deductions for federal taxes.
What are the Roth IRA Rules?
If you’re planning on starting a Roth IRA soon, take note of the following rules and guidelines.
- You will only have to pay for whatever amount you will put into your IRA. Contributions are not allowed to be deducted from your taxes.
- This year and last year, you are allowed to contribute a maximum of $7,000 if you belong to the 50 and above age bracket and $6,000 if you’re below that.
- If the amount reflected in your MAGI is at $ 206,000 (married filers) or $139,000 (single filers), you will not be allowed to subscribe to Roth IRA. These limits were raised by $2,000 and $1,000 for single and married filers, respectively.
- If you are 59 years old and six months and you have been holding your Roth IRA for five years, you can choose to take your distributions plus earnings without having to pay for federal taxes.
- You’re not compelled to take money out of your account if you don’t intend to. Aside from that, you don’t have to adhere to any minimum distribution standards.
How can you open an account?
It’s possible to open an account with a bank or brokerage. After which, you can invest the money either as bank savings, exchange-traded funds, bonds, stocks, or mutual funds. If you choose to invest in bonds and stocks, you can open an account through a Robo-advisor or brokerage instead of the bank. Over time, you can add more money to your investments. You can deposit in small contributions or lump sum for as long as your total contribution is within the limit set for your category. You can also use your other retirement accounts to roll over and fund your Roth.
As mentioned at IRAInvesting.com, you can apply via robo-advisors instead of banks. They differ in the sense that with banks, savings vehicles such as CDS are offered instead of investments. On the other hand, Robo-advisors offer a hands-off investing approach. Instead, they rely on automated investment procedures for accuracy and better service. Between these two, the latter is a better option for Roth IRAs. But aside from these two, you can also use the services of traditional brokers for your Roth IRA. These brokers are also preferred because of the active approach they exhibit when helping you choose investments.
What are the benefits of a Roth IRA?
Here are some of the benefits offered by Roth IRA.
- Tax savings: Roth IRA is a potential way to save taxes given the fact that tax rates might increase in the future. If you pay taxes as you contribute, you’re paying it at a real-time rate. Since tax rates often get higher, there’s a high chance that if you pay it later, you will also pay a higher price for it. However, if you pay it now at its current rate, you get to save the difference between the higher future rate and the lower present rate.
- Seamless withdrawals: The good thing with Roth IRA is you can withdraw your contributions without penalty or taxes at any time.
- Double retirement plans: Aside from Roth IRA, you can also contribute to a 401(k) retirement.
These are just a few of the advantages you can enjoy from Roth IRA. You may not appreciate these benefits when you’re younger, but as you grow older, you will realize that not everyone can peacefully retire when they want. If you don’t plan your future, there’s a very good chance that you’ll have to work your way until your last days on earth.
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