So what makes Roth IRA such an attractive option?
It is not easy to retire. You need to have a good amount of savings if you want to retire peacefully and have a steady income source. However, sadly, around 23% of Americans are said to have no retirement savings. Another 23% have less than $1000 in savings and only 20% have over $200,000 in retirement savings. This is not a very good sign, and one of the major reasons why retirees around the country are in usually in trouble.
Another report on retirement savings indicates that around 45% Baby Boomers that are to retire soon haven’t even started saving for retirement yet. With personal savings as low as 5.3%, it is important for the nation to think and plan better.
Attend any life coaching session for seniors and the question of retirement savings will pop up. There are a number of retirement tools that can help you lead a good life once you decide to hang the boots. One of the greatest retirement tools is Roth IRA. Hoping that you meet the IRS requirements, this IRA may just be the tool that you need.
1. You Do Not Have To Pay Taxes
Taxes are cumbersome, and every penny matters once you retire since the inflow of money is limited. This is one major reason to pick Roth since your retirement gains are tax exempt. All contributions are based on an after-tax dollars formula, meaning you do not have your taxes deducted.
On the other hand, traditional IRAs and employer-sponsored 401(k)s are subject to tax deductions. However, these accounts are tax- deferred, allowing you to reduce your current liability. Nonetheless, Roth still is more beneficial. You can save up to six digits in taxes. Also, with Roth the chances of your Social Security benefits getting charged and you being hit with a Medicare surcharge also decrease. With everything becoming more expensive, it is now more and more important to be able to save a larger chunk of your retirement money.
2. No Withdrawal Requirements
Once you hit the retirement age, you do not have to worry about withdrawal requirements when it comes to Roth. In case of traditional IRAs and 401(k)s, you need to start making minimum withdrawals once you are 70.5 years of age. On the other hand, Roth IRA has no such requirements and you can enjoy the benefits of time compounding and make more money.
3. No Restrictions on Age in Case of Contributions
Roth allows you to make contributions for as long as you would like to. This means that anyone who meets the income limits can open an account and begin to contribute. However, there are contribution limits (up to $4,500 if you are 49 or under, and $6,500 if you are over the age of 49). Nonetheless, Roth is still good when compared to 401(K) that require seniors to stay unemployed to be able to contribute, and traditional IRAs that accept no contribution after the age of 70.5.
4. Withdrawing Contributions
This is one of the biggest problems with retirement savings since most IRAs have limitations on age and amount before you can withdraw your savings. And in case you do not meet the laid out requirements you have to pay heavy penalties. While, Roth IRA also has such restrictions, it is still a better option than other alternatives due to the requirements being less stringent.
Roth IRA comes with certain exemptions that allow you to withdraw money without any penalties.
You need to be at least 50.5 years of age to be able to withdraw without penalties, however you can do so if you need money, you are disabled or you have to pay back taxes or cover medical expenses that are more than 10% of your gross income (7.5% in case you are 65 or older).
All in all, ROTH allows you to save more and hence enjoy more benefits. It is easily one of the safest retirement options. Start planning your retirement now so you do not have to deal with retirement issues.