Saving on Taxes With a Roth IRA
While the purpose of having a Roth IRA in place is to save money for retirement, it is not at all uncommon for people to borrow funds from their retirement accounts. Regrettably, there can be very high tax penalties attached to making early withdrawals from any retirement account, especially a traditional IRA. The good news is that with a Roth IRA, provided it has been opened for a period of no less than five years, money can be taken without any sort of tax or early withdrawal penalty being imposed. There are many other benefits to using a Roth IRA and there are some requirements that people must meet in order to open one.
Tax Relief Act of 1997
The Roth IRA was put in place as part of the Tax Relief Act of 1997. Some restrictions do apply concerning eligibility for this sort of IRA as well as the amount of money that is permitted to be deposited per year. This depends largely on a person’s level of income. As long as a person is bringing in taxable income, Roth IRA contributions can be made until that individual turns 70. In addition, money can be left in a Roth account for as long as desired. Any money that is left in the Roth IRA can be distributed among heirs at the time of the account holders death and a will is typically needed to determine exactly how the money should be divided. Should a person decide to liquidate a Roth IRA, the money will be tax free.
Withdraw Without Penalties
One of the most attractive things about a Roth IRA is that it prevents people from having to pay higher taxes should the government decide to raise them at some point. With a Roth IRA you may begin to withdraw your money and none of it will be considered taxable. Many people find this to be much more advantageous than getting all of their money through social security. In addition, estate taxes can be reduced significantly by paying all income upfront, thereby decreasing the overall size of the estate. Typically, this doesn’t apply at the level of state.
No Extra Taxes for Heirs
Another very good thing about the Roth IRA rules in terms of relatives and loved ones is that the money taken from the IRA at the time of an account holder’s death is not taxable. The only taxes the heirs will have to pay will be inheritance taxes. This offers people peace of mind in knowing that should they die, their loved ones will not lose a fortune in taxes. However, it is important when considering any sort of retirement account that a person researches all aspects of each, prior to making a decision. Some Roth IRA 401k accounts are suited for certain individuals, depending on their circumstances and income bracket and impulsiveness is a very bad idea when making any sort of financial decision.
To find out more about the many types of retirement accounts, as well as which would be best suited for you, try consulting with a financial planner or visiting your local bank to discuss options. In addition, there are many sources online to help a person determine which type of retirement account would be most beneficial for them.