Is a Roth IRA Right For You?

A Roth IRA is a special retirement fund named after the late Senator William Roth of Delaware. The primary difference in a Roth IRA plan is the contributions are taxed, and money withdrawn is tax free given certain IRA rules are followed. The advantages and disadvantages to owning a Roth IRA are listed below.

The contributions to a Roth IRA plan can be withdrawn tax free, this is an advantage given one’s income is usually lower in retirement. The stipulations to have the money tax free are, a five year period must pass on the fund and the owner must be 59.5 on withdrawals of growth above principal. Other  funds are taxed as regular income as money is taken out, in contrast a Roth IRA is taxed as money is placed into the fund.

Roth IRA conversions are another advantage to owning a Roth IRA. If money is transferred the full amount of the transferred funds can be withdrawn penalty free. Granted a five year period must have passed on the converted funds.

Some people consider the fact that funds not being tax deductible right away is a disadvantage. A Roth IRA is not tax deductible when funds are contributed, but only when funds are withdrawn. Thus the immediate benefits  are not realized, and if a person were to die before withdrawal or full withdrawal then the tax benefits would never be realized.

In a traditional IRA the money placed in the fund helps to lower a persons adjusted gross income (AGI). The immediate benefits to lowering ones AGI are reducing taxable income, tax deductions, and tax credits. To be remembered though is the money will be taxed when withdrawn as regular income, thus some people prefer a traditional IRA and some like a Roth IRA.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *