What are the Benefits of a Roth IRA?
Roth IRA Benefits
The Roth IRA is one of the best investment account options for middle-class families to build wealth. Following are 6 things to know about Roth IRA’s and 6 reasons you should consider starting to invest in a Roth IRA.
#1
Roth IRA’s provide tax free growth for investments inside the account and once withdrawn at retirement age, the income is free. This is huge since tax rates are expected to rise in the future. Having a tax free bucket of income is a powerful tool to have in your investing arsenal.
#2
You must have earned income to contribute to a Roth IRA (passive income will not qualify). However, there are income ceilings where once you reach you can no longer make direct contributions. These income limits are:
Single = $144,000
Married Filing Jointly = $214,000
Married Filing Single = 10,000
If you are over this limit you cannot directly contribute, but can do what is called a “back door” contribution by filing a Form 8606 with your tax return. (Don’t forget to mention this to your tax advisor)
#3
For low income taxpayers, contributions to a Roth IRA can potentially qualify you for the Saver’s Credit, a great way to increase your tax refund. This is available to taxpayers that have incomes that fall below:
Single = $34,000
Married Filing Jointly = $68,000
Head of Household = $51,000
#4
The annual contribution limit is $6,000 if you are under 50 years of age and $7,000 if over 50. This limit is per person, so a married couple could contribute up to $12,000 per year.
#5
When you put money into a Roth IRA account it will not automatically be invested in a stock or fund. You will need to choose your investment options.
#6
Contributions to a Roth can be withdrawn at any time, completely tax free. However, be sure to take out only your contributions and not your gains. Withdrawal of investment gains can happen at 59.5 years of age.
Happy Trading, Verdia
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