In today's day and age there are more than enough options to help you to plan for your retirement. Choosing the right option will require you to make careful analysis of the different mechanisms you have to choose from. Many people have a strong interest in setting up their own Roth IRA accounts because of the many tax benefits they provide. Learning about the benefits and restrictions of a Roth IRA are well worth considering for those who are seriously planning on setting up their financial future.
Roth IRA Tax-Free Benefits
When you have a Roth IRA the money in your account will be working for you and will be allowed to grow tax free in lieu of getting a tax deduction. This means that you can put almost anything you want in this account to prevent it from being subjected to taxes. Unlike the regular IRA account, which can only hold cash dollars, the Roth IRA can also hold stocks, bonds, mutual funds, certificates of deposits, and/or money market accounts. These accounts can be set up through a number of different banking institutions.
Easier Withdrawals With A Roth IRA
Another one of the benefits and restrictions of a Roth IRA is that withdrawals of contributed funds are much easier than in a traditional fund. But while this is a great benefit to have in this type of account it can also be a restriction that you need to be aware of. When you make a withdrawal of contributed funds you have immediate access to your money any time you need it, however, a restriction is imposed for those who wish to withdraw their earned income. Those funds may be imposed with a 10% tax penalty and face other financial consequences if you haven't reached the age of 59 and a half at the time of the withdrawal. These penalties can be avoided if you apply for a hardship withdrawal, which is allowed under circumstances such as a disability, medical expenses, death, or other issued that may be on their approved list.
Roth IRA Inheritance
You are also allowed to inherit a Roth IRA from someone else. If you have been named as the beneficiary on an account, the account will be transferred to you after the original holder of the account has passed away.
When you study the benefits and restrictions of a Roth IRA you'll soon realize that you have no tax deductions with the Roth IRA. Since direct contributions are after taxes you will be expected to pay the taxes on any money before you deposit them into the account.
There are also income limits in order for you to participate in a Roth IRA. If your income is higher than a certain dollar amount you will not be allowed to make any contributions into this type of account. There are other income limits that will limit the amount of money you will be allowed to contribute.
When it comes to planning for your retirement, it is clear that everyone has plenty of options to choose from. Opening a Roth IRA is a very practical way for you to take control and secure your financial future.