If you are new to the world of retirement planning and investing, you may be searching for reliable Roth IRA advice. While it is certainly true that it is always a good idea to consult with a certified financial planner before investing any of your money, it is possible to learn just about everything you need to successfully save for retirement online. This article has been designed to provide a basic introduction to the advantages and disadvantages of investing in a Roth IRA.
What is a Roth IRA?
A Roth IRA may just be the single greatest piece of legislation ever created for the common investor. Named after the now deceased Senator from Delaware, William Roth, this far-reaching investment vehicle was passed as part of the Taxpayer Relief Act of 1997. Roth IRAs are similar to tradition IRAs, yet have a few distinct characteristics that make them a tremendous way to save for your retirement.
Roth IRA Advice
Roth IRA Advantages
Perhaps the biggest complaint retirees have with traditional IRAs is the fact that they must pay taxes on the earnings at distribution. Furthermore, since tax laws seem to change on an almost daily basis, many times it is impossible to predict what tax bracket you might be in at retirement. Besides being extremely frustrating, this also serves to hinder your ability to completely plan for retirement. Roth IRAs effectively serve to put this issue to rest.
Unlike contributions made to traditional IRAs, contributions made to Roth IRAs are made with after-tax dollars. Since the investor pays taxes on these dollars before being contributed to the retirement account, contributions can continue to grow tax free throughout the life of the investor.
Additionally, in many circumstances, investors are even allowed to take an early distribution from their Roth without having to worry about incurring early withdrawal penalties and fees. Even more exciting is the fact that investors are not forced to begin taking distributions at any age. This is a drastic change from traditional IRA requirements which state that investors must begin taking distributions at age 70 ½.
Roth IRA Disadvantages
Despite the fact that Roth IRAs seem to almost be the perfect retirement vehicle, there are a few disadvantages. Perhaps the most significant disadvantage is the fact that the investor cannot take a federal deduction on their taxes for the tax year in which the contribution was made. Additionally, there are a few Roth IRA qualifications that must be thoroughly satisfied in order to be able to participate in this investment.
Finally, many investors may find that they would have received a greater overall tax benefit if they would have simply invested their retirement funds in a traditional IRA. When trying to determine whether or not a Roth IRA is right for your circumstances, it is crucial that you are able to reasonably estimate how much income you will be earning at retirement.
When it comes to Roth IRA advice, perhaps the easiest thing to do is open up an account and get started. Time equals money and the longer your money is invested in the market, the greater chance is has to grow into something substantial.