A Roth IRA (Individual retirement arrangement) is a type of U.S. Retirement fund that provides certain benefits for taxes and interest rates. Along with money that the person puts into the fund, other things can attribute, such as stocks, investments, and mutual funds. Having a retirement fund in place early can greatly improve the quality of your life in old age and ensure that you are financial stable. There are many different options when it comes to these plans, and knowing which one will best suit you and your future can be difficult. Let’s take a very good look at a Roth IRA from all sides.
The Advantages of a Roth IRA
1. Huge Tax Breaks
One of the biggest benefits of a Roth IRA is that you can withdraw from it completely tax free. This means that the money you put in, will have no taxes withheld from it when you retire and begin using it.
2. Tax Free Inheritance
Another large perk of utilizing this type of retirement plan is that you have the ability to leave money to your family in the event that something where to happen to you. Along with being able to leave this to them, they would also be able to receive all of the money without paying any taxes or penalties.
3. Use Your Money Any Time
The only money that is penalized if taken out early is the interest and money earned from your contributions to the account. The money that you put in, out of pocket, is completely yours and can be accessed with no penalties at any time, even before retirement.
4. No Mandatory Distributions
Many retirement funds will force you to withdraw money at a certain point, but not Roth IRA’s. The normal age that withdraws become forced is 70, but you can continue to work and build up your savings after this time with Roth IRA.
5. Additional Savings After Retirement
You are able to continue to contribute to your Roth IRA even after you retire, if you continue to work. This allows you to continuously build your retirement fund and further ensure your financial safety.
The Disadvantages of a Roth IRA
1. An Ever Changing Tax Bracket
The amount of money you make, and the amount of money you plan to make in the future, all need to be considered when choosing a retirement plan. With Roth IRA’s, if you go to a lower tax bracket than when you first opened your account, you are still paying the taxes on any money withdrew early as if you where making more.
2. Limits That Are Limiting
There are annual contribution limits with these types of funds, which means that you can only put a certain, set amount of money into your account in any given year. This could hinder your ability to save, especially if you want to make a large contribution at any point.
3. No Matching Funds
Most companies offer their employees a type of retirement fund called a 401(k). These are funds that offer a great deal of benefits, including fund matching by your company. Choosing a Roth IRA could forfeit your option to have a 401(k) account with any future company you make work for.
4. Tax Laws Are Always Changing
You never really know what the tax situation in the U.S. will look like ten years from now, which makes it difficult to trust any form of savings or retirement plan. Talks of sur taxes being added onto Roth IRA distributions have been buzzing around, this would effectively end their tax free status.
Important Facts About Roth IRAs
