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When we are just starting out saving for retirement, many of us wonder whether we should start with a traditional IRA or a Roth IRA. In reality the answer is, you should maintain both as a part of your retirement portfolio. Here, we’ll look specifically at the benefits of having a Roth IRA, and how this type of account can put you in a positive financial position for retirement.
Consider these four benefits of having a Roth IRA.
- Your money grows tax-free. This is one of the most obvious differences between a traditional IRA and a Roth IRA. In a Roth IRA, contributions are made with money that has already been taxed. That means when it’s time to make withdrawals from the account, you do not have to pay taxes on those withdrawals. This holds true based on the rules that you must be at least 59.5 when before you start taking withdrawals, and you cannot make a withdrawal (on earnings) until five years after the beginning of the year in which you made your first Roth IRA contribution.
- You can contribute at any age. In a Roth IRA, you can continue to make contributions to the account regardless of your age. This is different from a traditional IRA, in which you cannot make contributions past age 70.5.
- You do not have to take required minimum distributions. With a traditional IRA, you are required to start taking regular withdrawals starting at age 70.5. The RMD is the minimum amount you must withdraw from your account each year. Roth IRAs, however, are not subject to RMDs. This can be helpful in the event that you do not need your money right away, and you would rather pass the money in your IRA along to your beneficiary.
- You can withdraw contributions at your convenience. Though you have to wait at least five years to make withdrawals on earnings (as stated in point number one), you can take out money representing contributions at any time without penalty. The accessibility of funds are another one of the major benefits of having a Roth IRA.
The nature of the Roth IRA itself means that you essentially have access to tax-free money at any point when you need it during retirement, so long as you contribute to it during your working years. Don’t leave the Roth IRA out of the mix when it comes to building a substantial retirement portfolio that will last you the duration of your retirement.
Learn more about the ins and outs of retirement investing and saving with Ty J. Young Inc.’s Retirement You Earned blog! For help securing your retirement nest egg, call the Ty J. Young Inc. team today at 877-912-1919!