What is Roth IRA?
Roth IRA is a special retirement account that you pay with income after tax (you can not reduce your contribution to your income tax). Once you have done this, all future withdrawals that follow the Roth IRA rules are tax-exempt. There is no tax deduction in advance for Roth IRA contributions, as there is a traditional IRA, On the other hand, the Roth distribution is tax-free as you follow the rules. And since every penny you keep in Roth IRA is your money-not your subsidized prize from Uncle Sam-you can use your donation (but not your income for that contribution) anytime, tax free and punishable.
Like beauty, the advantage of Roth IRA is in the eye of the beholder. It all depends on the tax group who saw it-now and when he retired. Roth IRA makes the most sense if you estimate your tax rate will be higher when retired than the current rate. That makes Roth IRA saves the ideal vehicle for low-income young workers who will not miss an upfront tax deduction and will benefit from tax free growth and coupled growth. Roth IRA also attracts anyone who wants to minimize their salary in retirement, as well as older and wealthy taxpayers who want to leave assets to their tax-free heirs. (Unlike traditional IRAs, there is no minimum distribution required in Roth IRAs, so well-funded retirees can leave their Roth money untouched if they do not need it.
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Beyond the tax rate, some of the unique features of Roth can influence your decision on whether to contribute to the Roth IRA.
Savings during retirement: You can contribute to Roth if you continue to work past retirement, as long as you stay within the income limit. Traditional IRAs do not allow contributions after the age of 70½ years.
Flexibility: You can withdraw your contribution at any time without tax or penalty. Although you should normally hold a Roth account for at least five years and at least 59 ½ before you can avail of tax-free and penalty-free income, there are exceptions, including the death or disability of the account holder or the use of up to $ 10,000 to purchase the first home for yourself or a family member certain. In addition, you can avoid a 10% early withdrawal penalty, but will still be subject to income tax, if you are earning early to pay for higher education fees for yourself or family members.
No compulsory withdrawal: Roth account holders are never forced to withdraw money (traditional IRA requires withdrawals starting at age 70 ½). This is particularly useful for residential planning purposes as it allows the account balance to expand. The heirs do not pay income taxes on the Roth IRA heritage, but they are required to take distribution during their lifetime.