Since you are reading this, it’s likely you’re looking for new financial advice. And here is the good news: the Roth IRA is a great option for your retirement savings. Now you must be thinking how to start a Roth IRA? It can help you save more money than ever and grow faster than traditional IRAs. So if that sounds like something you want to learn more about and its benefits, read on below:
Tax-Free Earnings
One of the most notable benefits of a Roth IRA is that you pay taxes on the amount you contribute, not on the earnings. You can withdraw your contributions at any time without penalty and are also free to withdraw earnings after age 59 1/2 if they have been in the account for five years.
Tax-Free Withdrawals
One of the most significant benefits of a Roth IRA is that you can withdraw your money tax-free. Unlike traditional IRAs, contributions to a Roth are made with after-tax dollars and withdrawals are made without having to pay taxes on them. The earnings on investments in a Roth IRA grow tax-free as well, meaning that you will never be taxed on them as long as they stay in the account.
If you’re looking for an investment where all gains can be withdrawn without tax, consider setting up a Roth IRA today!
No Required Minimum Distributions
You do not have to withdraw funds from your Roth IRA at any age. This huge benefit gives you control over when (or even if) you start taking distributions. If you have other investments that are generating income, such as stocks or bonds, there is no reason to take distributions from your Roth IRA. You can use those other assets first to continue contributing money into the Roth IRA until it makes sense for you personally.
Additional Savings
- The money you invest in a Roth IRA can grow tax-free. The earnings are not taxed until they are withdrawn, which is why it’s called an “after-tax” account. You can withdraw the earnings at any time without paying taxes on them.
- You don’t have to take required minimum distributions (RMDs). RMDs aren’t mandatory for Roth IRAs and owners can keep their accounts open and continue to contribute indefinitely if they wish.
- You can contribute to a Roth IRA as long as you are earning income. An individual who has earned income may contribute up to $5,500 per year ($6,500 if 50 or older). Any unused contribution limit from previous years might be carried forward until age 70½, when contributions must stop.
As per SoFi professionals, “Choosing between a 401k and an IRA is dependent on your needs for retirement and current situation. Many people actually choose to use both types of retirement accounts in their lifetime.”
A Roth IRA is a great way to save for retirement. The earnings are tax-free and you don’t have any required minimum distributions after age 70-1/2. Plus, the contribution limits are much higher than other types of retirement accounts.
