There are numerous Roth IRA benefits retirement account holders. Roth IRA’s are a personal retirement savings plan that enables retirement savings and tax advantages. Roth IRA’s are similar to other Individual Retirement Account plans in many ways, but there are some significant differences that have made it the most popular IRA type since it was began in 1998.
Some Roth IRA benefits are:
1. Contributions are made with after tax dollars, which means that withdrawals are tax free under the following conditions: you have to be at least 59 1/2 and the money invested in the account is at least 5 years old. Under these circumstances you will not pay taxes on earnings that your account will generate.
2. You are not required to take a minimum distribution at age 70 ½ as is the case with a traditional IRA. With this feature you potentially could pass along your investments to your beneficiaries if that is a goal.
3. You can withdraw money from the account, up to the amount you have contributed, before retirement without tax issues.
4. There is no age limit that governs when you can start or stop investing.
Roth IRA benefits for those over 50
The contribution limits for Roth IRA’s change periodically, with the 2012 maximum for individuals under age 50 being the smaller of $5,000 or the amount of your taxable compensation for 2012. For those over the age of 50, the maximum is increased to the smaller of $6,000 or the amount of your taxable compensation for 2012.
If you currently have a traditional IRA those funds can be converted to a Roth IRA. You will have to pay taxes on that money though since the contributions to a traditional IRA are made before taxation, and there are certain eligibility requirements.
Also, money from other retirement plans like a 401K or 403(b) can sometimes be rolled over to a Roth IRA. Note that these conversions have tax implications you should discuss them with your tax professional due to their complexity.
Lastly, there are certain situations where you can take an early distribution of contributions and earnings. Qualifying exceptions that allow an early withdrawal without paying penalties may include needing to pay for medical and educational expenses, being disabled, and buying a first home.
Planning for retirement is an important decision. Always seek the advice of an investment professional or your accountant whenever making decisions that can involve your taxes. Take advantage of all available Roth IRA benefits.