A Roth IRA is an investment account which can be used at any time, for any economic activity. A Roth IRA holder controls it, and contributions can be made after the age of 18. Contributions are not tax-deductible, but investment earnings grow tax free and withdrawals are taxed as ordinary income. You can visit theislandnow.com to learn more.
Top Benefits of Investing in a Roth IRA
1) Earnings on investments are not taxed annually when withdrawn from the plan.
2) The funds invested are not taxed until withdrawn.
3) Withdrawals are tax-free if the money is being used for retirement.
4) The withdrawals from the account cannot be taken from any other source, such as a home sale, inheritance or disability pay.
5) Contributions to a Roth IRA can be made at any time, not just at a later date. This means that you can start investing as soon as you reach the age of majority (18 in most states). In contrast, with an IRA the first year that you can make contributions is upon reaching age 70 1/2 (in most states).
6) There are no mandatory withdrawals after 70 1/2 years old. If your investment accounts have gained in value, you can wait as long as possible to make withdrawals.
7) When you withdraw the funds, they can be paid to you as a single lump sum or in installments. This is an advantage over Social Security benefits, which must be paid in one lump sum.
8) You can keep the account open indefinitely, even if you do not need the money for retirement (though there are penalties for not withdrawing when you reach age 70 1/2).
9) The funds in a Roth IRA account can be used tax and penalty free for any economic activity. This includes purchasing a home. With the exception of a first time home buyer (who can withdraw up to $10,000 from a Roth IRA for this purpose), funds from an IRA or 401(k) may not be used for the purchase of a residence if you are not a first time home buyer.
10) If you work for yourself, you can also make contributions to your own retirement account. In some cases you can deduct these contributions on your taxes. However, there are special restrictions imposed by the IRS on self-employed individuals that prevent them from making deductible contributions to an IRA. These restrictions do not apply to the Roth IRA.
How A Roth IRA Differs From a Traditional IRA?
A traditional IRA and a Roth IRA are very similar. The main difference between the two is that with a traditional IRA you can deduct your contributions from your income, but with a Roth you will pay taxes on your contributions at the time they are made. Because of this, most people prefer the Roth to the traditional, because when they retire, they will not have to pay taxes on their withdrawals.
In addition to this, funds in a Traditional IRA must be withdrawn by age 70 1/2. In contrast, you can leave funds in a Roth account indefinitely if you wish.