Using a Roth IRA to invest for retirement is one of the most popular ways of saving for later in life. Still, there has been some confusion as to how it functions compared to a traditional IRA and what the rules are. It’s not too overly complicated but having some general information can help people to understand what a Roth IRA is and how it functions. Here is a short guide to the Roth Individual Retirement Account.
The Roth IRA is made popular because it guarantees a tax free income after you have retired anytime after the age of 59 1/2 years. With a traditional IRA, taxes are automatically taken from money grown in an IRA when it is withdrawn after retirement. A Roth IRA works differently. Instead, the investor pays taxes on the money being put into the account first and then no money is taken to pay taxes after withdrawal creating a much larger income without extra taxes involved. However, Roth IRAs do have income restrictions on them as they are designed for low income and middle class families, excluding the wealthy from their usage.
For the year 2013 single individuals who make up to $110,000 with their adjusted gross income can open up or invest into a Roth IRA. Married couples with incomes of up to $183,000 can also use the Roth IRA plan to save for retirement. Most households in the US make between $40,000 to $50,000 per year, easily qualifying them for this special type of retirement savings account. For the majority of Americans desiring to save for retirement, the Roth IRA is a definite option.
There are limits as to how much can be contributed to a Roth IRA or any IRA. No more than the maximum of $5,000 can be invested into the individual retirement count in any given investing year, which is strangely considered to be 15 months. One year’s of investments which can be claimed for tax purposes is anytime between January 1 of the current year until April 15 of the next year, which is also tax day. This rule is in place to allow for a greater potential to invest in a person’s Roth IRA.
One more thing should be considered about investing in IRA. In order to receive it tax free, the money cannot be withdrawn until the investor has turned at least 59 1/2 years old. Otherwise you are required by law to pay not only the taxes of the money earned but also a 10% tax penalty. If you don’t want that to happen, sit on the money until you’re old enough to withdraw it. Read more here at gold ira rollover site.
Setting up an IRA is easily done with a little guidance. Some people are able to create a Roth IRA on their own and manage it but others choose to consult with a financial analyst who can help smooth the process. Roth IRAs are just that good to invest in.