What is a Roth IRA ?
What is a Roth IRA? A Roth IRA is an individual retirement account that holds investments. The Roth was created in 1997 to help middle class Americans prepare and save for their retirement years. The Roth IRA was introduced as part of the Taxpayer Relief Act, and is named for the late Senator William Roth of Delaware. This IRA is not tax-deductible, but offers much greater flexibility than a Traditional IRA. There are qualifying factors based on income to qualify for the Roth IRA: for single filers, a modified gross income not to exceed $120,000 and for married filing jointly not to be more than $167,000. Contribution limits are set at an annual $5000 cap, with a â€œcatch-upâ€ exception of an additional $1000 for persons over the age of 50 years old. After a Roth IRA is seasoned for a period of five years, both the contributions and the earnings in the account can be withdrawn without taxation or penalty. What is a Roth IRA? It is the form of account that holds investments, not the actual investments within. If the Roth IRA is self-directed, the account owner has additional investment options beyond the conventional stocks, bonds, and mutual funds, and can select other tangible investment assets including precious metals and real estate. Remember, with a Roth IRA contributions are made with after-tax assets, so the transactions within the IRA have no tax impact and withdrawals are made tax-free. The account ownerÂ can begin taking distributions at age 59 Â½ years old, provided the account has seasoned for five years, but unlike other IRA’s, the Roth IRA does not require disbursements to begin by age 70 Â½ years old. This flexibility allows individuals who may not need the withdrawals for retirement to continue funding the account and growing earnings in the Roth’s tax-free environment. Many investors choose to continue Â Â contributing to the Roth IRA and leave it as a legacy for their heirs. Assuming that tax rates may escalate in the coming years, investing in a Roth and paying taxes on contributions now could be an advantage, anticipating a higher tax rate could be in effect at retirement age when distributions begin. The Roth IRA has no requirement for minimum distribution. What is a Roth IRA? A tax-sheltered plan for investments as individuals prepare for retirement. Choosing a self-directed Roth IRA could be the key to financial stability in retirement years. Not only will the investments grow in the tax-advantaged Roth environment, the self-directed option allows the account owner a broader range of investment vehicles, and much more control of the account. The owner selects the custodial company to hold the account, and with careful consideration can choose one that offers the types of investments that most closely match their own investment philosophy. When deciding on the custodial company, be aware of the fee schedule and services offered. Every type of IRA has its own unique tax implications and eligibility requirements. Government spending and ballooning deficits have most tax experts agreeing that the current top tax rate of 35% could see dramatic increases over the next several years, so the Roth IRA’s best asset could be the tax-free withdrawal featureâ€¦tax free and penalty free access to your retirement savings. What is a Roth IRA? Simply stated, it is an individual retirement account that can provide huge benefits when used to save money for retirement.