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Roth IRAs – What You Need to Know

Young woman providing care and support to an older woman.Every working adult should give serious consideration to starting an IRA (Individual Retirement Account). Most people have heard about IRAs yet do not understand the true value of this retirement savings tool. Perform your due diligence, research the merits of IRAs and you may find, that they may help establish a road path to truly enjoyable golden years.

The Advantages of a Roth IRA

The issue of income tax is particularly important in the context of Roth IRAs. If you make prudent use of this investment vehicle, when you reach the age of 59½, you may be able to withdraw your money income tax free. In short, Roth IRAs are individual retirement accounts opened by people that have earnings, without regard to their employer. Though employers don’t match Roth IRA contributions like they often do with 401(K) accounts, this retirement investing vehicle may still be worthwhile. There are income limitations that may prevent you from being able to directly contribute to a Roth IRA but with a great advisor, like the advisors at Munn & Morris Financial Advisors in Dallas, there may still be a way for you to take advantage of this vehicle.

The primary difference between Roth IRAs and traditional IRAs and other retirement savings accounts is the fact that the Roth variety is unique in terms of taxes. Conventional IRAs are based on the contribution of pre-tax dollars. This means such contributions are deemed tax deductible in the year they are made, then taxed at the time when the money is withdrawn during retirement. Alternatively, Roth IRAs require that the taxes be paid upfront so the money can be withdrawn tax-free during retirement.

Why Roth IRAs are Attractive

The idea of contributing after-tax money today rather than paying taxes in the future might seem like a cost not worth paying in the present moment, yet it may very well be worth it over the long haul. After all, it is quite possible that taxes will escalate in the years ahead. If you believe taxes will rise, paying taxes today could be much wiser than paying them down the line at a potentially significantly higher clip. Also, any potential growth in the Roth IRA is never taxed.

Opt for a Roth IRA and you may be able to withdraw money from your account at any time you desire without having to pay taxes as those taxes were already paid. This is in contrast to the traditional IRA in which you are taxed on every single penny after withdrawing your money. Furthermore, traditional IRAs slap early withdrawals with a 10% penalty if the money is taken out before the age of 59½. Opt for a Roth IRA and you won’t have to worry if you suffer a hardship such as losing your job or falling ill. Rather, you will be able to withdraw your money without paying a penny in taxes and make full use of your savings when you need it the most.

The Roth IRA Gets Better as Time Progresses

The appeal of Roth IRAs increases as time progresses. This approach to retirement saving permits a catch-up contribution of a thousand dollars each year for individuals who hit 50 years in age, allowing for the total contribution to reach $7,000 each year. Add in the fact that the longer the Roth is held, the more valuable the potential tax-free investment growth becomes, and you have all the more reason to take advantage of this unique retirement investing account.


Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Some investments mentioned may not be suitable for all investors. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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