Retirement and the Roth IRA
An IRA is an IRA is an IRA,Guest Posting unless it’s a Roth IRA. Roth IRAs, which burst upon the investment scene not so long ago, offers some attractive departures from traditional IRAs, especially if it’s being used as a retirement planning tool.
The Roth is the same as a traditional IRA in that it is not an investment in and of itself, but a vehicle to investing in other instruments such as stocks, bonds, bank certificates of deposit, mutual funds, and even real estate. That’s pretty much where the similarities end and the differences begin.
With an ordinary IRA, the money you contribute is not subject to income taxes first, it comes straight from your gross salary. Taxes are paid when you withdraw the money and traditional IRA monies have to be withdrawn from the account when you turn 70 ½, or they become subject to higher tax rates.
In the case of the Roth IRA, the money you pay in comes from your net salary – in other words, you have already paid the income taxes on it. For many people it makes sense to have paid the income taxes up front when they are making more money, than later on when they need the money for retirement.
In addition, there are no taxes on the growth from your Roth IRA. What you put in, stays in, and earns additional money for you. And, the longer you leave it in, the more it grows.
At the same time, the Roth IRA is a bit more accessible since you can make withdrawals from it, provided https://s3.us-east-1.wasabisys.com/are-gold-iras-good/are-gold-iras-a-good-idea.html you have had it for at least five years and you are at least 591/2 years old. There are no penalties for early withdrawal from a Roth IRA and, because the income taxes were paid up front, there is no tax to pay at the time of withdrawal.
There are some rules that govern contributions to a Roth IRA. For example, you can contribute up to $4,000 per year as an individual, but if you are 50 or older you can make an additional contribution of up to $1,000 as of 2006, in order to “catch up.” As long as you have income – from either work or alimony in most cases, you can make contributions to a Roth and you can keep doing so, no matter how old you are. You don’t qualify for full contributions to a Roth IRA if your modified adjusted gross income (AGI) is over $95,000, but can make partial contributions if you don’t earn more than $110,000. Married couples can make full contributions to a Roth IRA if their joint income doesn’t top $150,000, and partial ones if their income isn’t over $160,000.