Repaid.org Banner Ad
 

Home / Investment / Top Reasons To Open A Roth IRA

 

Roth IRAMany of us are afraid that we will be forced to rely on Social Security during retirement. For me the fear is mainly that I might have to rely on the common sense of the politicians in Washington. Since common sense and politicians usually do not go hand in hand, you can understand my fear. Barring the miracle of mass political retirements, we must find ways to provide cash for our own futures. A Roth IRA may be one of the best tools for that. Here are five good reasons that you should open a Roth as soon as possible.

Tax Free Growth

You make contributions to your Roth from your own pocket. That means the money has already been taxed before it goes into the account. There are no taxes levied as the money grows, either. When you withdraw the money, there are few taxable situations. Mainly, you will only be taxed if you withdraw funds within five years of your initial deposit or you are less than 59½ years of age. In either case, you are only taxed on money earned, not your deposits.

Instant Withdrawal

You have constant access to your cash, so you can withdraw your money at any time. Early withdrawal is not wise, but, if something drastic happens, you know you can use the money. If you do choose to make a withdrawal, you need to keep in mind the taxable situations mentioned in the previous paragraph.

Lifetime Contribution Option

We all hope to retire someday, but many of us will find complete retirement boring. With boredom may come a part-time job or contract work. As long as you earn taxable wages, you can contribute to a Roth IRA. This allows you to continue to build money for the years when you can not work or for those medical bills that always come with advanced age.

No Minimum Distributions

Traditional retirement accounts, 401(k) and other IRAs, require minimum distributions after a certain age. If you do not need the money or want to use an IRA as an estate building tool, that makes a Roth IRA the best vehicle available.

Balanced Tax Liability

Traditional IRAs and 401k) plans assume that you will face a lower tax rate after retirement. Changing political focus and, if you are already in the lowest tax bracket, may make that untrue. A Roth IRA allows you to tackle your post-retirement tax burden now. Even if you choose to have a Roth as a small portion of your retirement plan, it can help to diversify your tax exposure and may offset any higher rates in the future.

A Roth IRA is a great investment tool for those who have the money. Some people have been known to shift some money from their 401(k) to focus on a Roth. One side benefit of building a Roth is that it can act as your emergency fund in a dire situation.

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

Recent posts in Investment

 

3 Comments

  1. I recently rolled over a previous 401K into a Roth IRA, I am excited to have both sides of the tax coin covered for my long term goals. Thanks for the info on the Lifetime Contribution Option, I was unaware of this benefit now I am even more pumped about my Roth!
    WalletEngineers recently posted…Saving 300$/Month in 3 StepsMy Profile

  2. Pingback: The Weekly Personal Finance Digest – The Move Edition | Debt RoundUp

  3. Great overview of IRAs. This is the next step that my wife and I need to setup in our retirement planning. We have our 401Ks maxed out, but haven’t moved onto the Roth IRA yet.
    MoneyAhoy recently posted…The Best Dividend Paying Stocks – August 2013 RecapMy Profile

Leave a Comment

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

CommentLuv badge