Saving for Retirement: Advantages of a Roth IRA

Are you thinking about your retirement strategy? A Roth IRA (Individual Retirement Account) maybe a good fit for you if you fall within the lawful guidelines of this retirement plan. The qualifying guidelines change every year so it is important to consult with your financial advisor regarding the latest changes.

Roth IRAs have some significant advantages over most other investment and retirement instruments. In contrast to a Traditional IRA,
1.    Contributions to the Roth IRA are not tax-Deductible.
2.    Withdrawals are generally not taxed; Exceptions include

  • Retirement plan account has been opened at least 5 years
  • At least 59.5 years old for any withdrawal on the growth above the principal contribution

A Roth IRA has fewer withdrawal restrictions compared to the traditional IRA.  Because you use after-tax money to make your contributions, you don’t get a tax deduction like you would with a traditional IRA. You can even take a portion of your money out early without any penalty or tax ramifications.

Advantages of a Roth IRA

1.    Tax-free growth – Since the Roth IRA contribution is made after taxes, all the money you make is yours to keep. Any withdrawal will not be taxed on condition you don’t withdraw the growth before 59.5 years or a qualifying age. This makes a huge difference over time.

  • The taxes imposed on withdrawing capital gains from a traditional IRA, makes the Roth IRA a better arrangement in the long run.  It’s no surprise that many consider this one of the best advantages of a Roth IRA.

2.    Conversion funds from traditional IRA to the Roth IRA can be withdrawn up to the amount converted without penalty considering the seasoning period has passed.

3.    There are no mandatory withdrawal dates. You can keep the money in the account for as long as you like, unlike Traditional IRAs. This provides a greater length of time for your money to grow.

  • Traditional IRAs require the owner to begin withdrawing funds by a certain age. And remember, those profits you made in a Traditional IRA are going to be taxed.
  • The added timing flexibility can really make a difference. This is particularly true if you’re in good health and likely to live for a long time. With a Traditional IRA, you might run out of money if your longevity is significant.

4.    Beneficiary:  In case of death, a spouse becomes the sole beneficiary of the Roth IRA.

  • If a spouse had an existing Roth IRA, it’s permissible to combine the two Roth IRAs into one plan without getting penalized.
  • Assets in the Roth IRA can be passed on to heirs

5.    First time home buyer:  A lifetime maximum $10,000 in earnings withdrawals qualifies as tax-free if the funds are used to purchase a primary residence.

6.     Early withdrawals aren’t taxed. Since the money you put in the account was after-tax, you can withdraw those funds without a penalty or tax. You can only withdraw what you put in, though, so you won’t be able to withdraw the profits early without a penalty.

  • Some special exceptions are available to use the funds to purchase a home.
  • This increased flexibility can be advantageous when life’s challenges find their way to you. But just like with any other investment, don’t be tempted to withdraw the money if you don’t really need it!

The Roth IRA has been around for several years now, but not everyone is familiar with the advantages it has to offer.

Overall, it’s an excellent investment and retirement vehicle for most people. Contact your financial advisor today to see if you’re eligible to contribute to a Roth IRA. This kind of investment can really help get your retirement goals on track.

About The Author

Keroy King

Keroy King is a Financial Educator, Podcast Host, Keynote Speaker & Empowerment Expert, residing in Los Angeles, California and the Founder of "Life Then Finance" a community where she coaches individuals to overcome personal and financial obstacles that are holding them back so they can quickly and effectively live a full-filled and purpose driven life. Even when they think the odds are stacked against them. She is also an online course creator & instructor of several personal finance and personal transformation online courses.