Roth IRA
When you invest in yourself earlier on, it gives you more time to build the financial security that you’ll want in the future. Learning about the different retirement options now will help you make an educated choice about the best plan for your financial wellbeing.
What is a Roth IRA?
Unlike a 401(k), there are no employer contributions to a Roth IRA and your employer is not involved in the plan. Without the confines of pre-picked options, you have the freedom to decide where you want your money to go and when to add a contribution. Unlike a Traditional IRA, there are no mandatory withdrawals once you reach age 70 ½ with a Roth IRA.
Benefits of a Roth IRA.
In this plan, your money is taxed before it's invested. This means that it might take longer to save. But when you withdraw money during retirement, you won’t have to pay any taxes on it (see below). You’ll decide how you want your money to be disbursed when you set up the account. You won’t be taxed on any income you gain from your investment.
What else you should know.
You can withdraw regular contributions tax-free and penalty free at any time. A withdrawal of conversions or rollovers may be subject to a tax penalty if withdrawn within five years of being converted or rolled over. When you make a withdrawal of earnings from a Roth IRA, it must be considered a qualified distribution, or it will be subject to an income tax and other fees may apply. You can make an eligible withdrawal five tax years after your first contribution, and if you meet one other criteria:
- You've reached age 59½
- Disability
- First-time homebuyer
- Death, in this case a distribution is made to the beneficiary
Unfortunately, contributions to a Roth IRA are not tax deductible. This might seem like a downside to the account but remember that you don't have to pay taxes on anything you earn or any money you withdraw (if you meet the above requirements).
An investment account, like a Roth IRA, can have a huge impact on your savings for the future. If you'd like more information or are ready to get started, reach out to the Lake Trust Financial Life Planning team. They're ready to help you take the next step toward your financial future.