A Roth IRA, or Individual Retirement Account, is a type of investment account that you can open and fund with money from your own paycheck. The Best ira investments allow people to save for retirement in a flexible way – unlike many retirement funds, Roth IRAs have no age limits for contributions or withdrawals.
- Roth IRA’s are tax-free.
- If you withdraw from your Roth IRA early, you won’t have to pay taxes on the amount you took out (as long as it’s less than the amount that’s left in your account). In addition, there are no taxes on future earnings in a Roth IRA.
- You can contribute up to $5,000 per year ($6,000 if you’re 50 or older) to your Roth IRA by making after-tax contributions and don’t have to begin taking distributions until age 59½ (although the government may allow you to make withdrawals earlier). There are no income limits for contributing.
- Withdrawals from your Roth IRA are tax-free if you’re at least 59½, have a Roth IRA account for at least five years and meet minimum distribution requirements (which vary by age). If you do not meet these requirements, 10% of your withdrawl is subject to income taxes.
- Withdrawals from a Roth IRA do not count toward required withdrawals from IRAs. Therefore, you may be able to withdraw funds from your 401(k) and/or other retirement accounts without penalty by withdrawing the same amount in additional contributions to the Roth IRA.
- Contributions to a Roth IRA are not pre-tax and are automatically deducted from your paycheck, so there is no immediate tax deduction.
- The withdrawal of funds from a Roth IRA cannot exceed the amount you contributed, including earnings if you qualify for a penalty-free withdrawal. Therefore, you won’t have to pay taxes on gains that occur during the period of your account’s ownership (and possibly beyond). Also, after you turn 59½, the income tax withholding rate on distributions will be less than what it would be if you withdrew money from a traditional IRA. For example, if pulling out $30,000 would normally require paying taxes @ 35%, in a Roth IRA it would only require an additional 15% tax.
- If you have a 401 k that won’t allow you to withdraw from it when you want to, or if you want to avoid paying taxes on money that is in a 401k, then a Roth IRA is the ideal choice for your retirement account.
- When you contribute money to a Roth IRA, the IRS requires your investment account provider (such as Fidelity Investments) to keep track of how much you invested and how much interest has accumulated over time. This is called “Accumulation Tracking.