Roth IRA

The Roth IRA is a type of IRA, individual retirement account, named for Senator William Roth Jr. of Delaware. The Roth IRA has a few differences from traditional IRA’s. The main difference is that Roth IRA contributions are made from income that has already been taxed so it’s not tax deductible. However, withdrawals up to the amount of the contributions are free from federal income tax and earnings above the contribution amount are typically free from income tax as well. A Roth IRA also has fewer restrictions than traditional IRA’s. A Roth IRA can invest in securities like, common stocks, mutual funds, real estate, derivatives, notes, and certificates of deposit. Similarly to traditional IRA’s, capital gains, dividends, and interest are free from taxation.

Roth IRA’s allow for more flexibility than normal IRA’s in many ways. One is that if you convert from a traditional IRA and to a Roth IRA, you may withdraw the total amount of the conversion after the seasoning period is over. The seasoning period is five years. Once a contributor turns 59 ½ or becomes disabled he/she is automatically qualified to withdraw the earnings if the account is seasoned. The holder, spouse, children or parents of the Roth IRA account can qualify for $10,000 of earning withdrawals for the purchase of a primary residence. If one spouse dies, and they both own separate Roth IRA’s, the surviving spouse is allowed to combine the two without penalty. Since the Roth IRA is taxed before it goes into the retirement account it can’t be taxed at a higher rate later, should you be in a higher tax bracket after retirement. The Roth IRA does not impose forced withdrawals as do other types of IRA’s after the age of 70 ½ or once withdrawals begin after 59 ½.

There are limits on how much you can contribute to a Roth IRA retirement account. The limits are based on income and marital status. To know exactly what you are allowed to contribute without penalty check with one of our expert financial advisers. They can answer any questions you may have and draw out the best road map for you and your family to meet your goals to retirement.

The main disadvantages of a Roth IRA include:

• Contributions are not tax-deductible.
• If you end up in lower tax bracket after retirement you would have paid more in taxes.
• Early withdrawals of earnings are subject to stiff penalties.
• If you do not get to withdraw your Roth IRA your taxes have paid on it ahead of time.
• The threat that congress might start taxing Roth IRA’s