Five Reasons to Consider a Roth IRA

Achieving your retirement goals often will require the use of multiple financial vehicles.  401(k)plans are the most common since many employers with match contributions at some level.  Annuities offer tax deferred growth and the security of no risk.  Roth IRA’s offer their own list of advantages, five of which are detailed here.

Five reasons to consider a Roth IRA

1. Today’s tax rates are likely to be lower.  If you have been awake and breathing during the past 10 years, you have seen the demise of the US economy and it would be difficult to imagine a  scenario where tax rates are not increased in the future.  If you are in a position where your tax bracket today may actually be lower than your tax bracket down the road, a Roth IRA can help.  Taxes are paid prior to your Roth contribution, meaning that your money grows tax free with no taxes paid for withdrawals during retirement.  An experienced financial advisor can provide you with the information needed to make the right decision here.

2. Access money before you retire.  You can access money from your Roth IRA without paying taxes, anytime.  Remember, you already paid taxes on the money you invested into your Roth so you can withdraw the money you contributed with no penalty or tax assessment.  However, if you withdraw your earnings prior to age 59 1/2, you will pay income taxes and a penalty.  Limit your withdrawals to just the money you contributed and you can access it any time.

You want to be mindful of the loss of compounding interest if you must make an early withdrawal.  You miss a great deal of interest accrual by taking money out early.

3. No required minimum distributions. Traditional IRAs and 401(k)s require you to take a distribution at age 70 1/2, even if you don’t need the money.  This is not the case with the Roth IRA.  If you don’t need the money, leave it in and continue to accrue more interest and have the opportunity to pass more tax-free money on to your heirs.

4. Investment choices.  Your employer’s 401(k) program may have limited investment choices.  However, a Roth IRA will offer you a variety of investment options and more control over your portfolio.  This means you can do much more than what is allowed with your 401(k).

5. Conversion rules. It is possible to convert a traditional IRA to a Roth IRA, allowing you to take advantage of today’s tax rates and saving on future tax liabilities.  Make sure that you understand these tax implications.  An experienced financial advisor can help you determine if this is a smart move for your money.

The Roth IRA is a retirement account that allows you a great deal of flexibility and under the right set of circumstances can lower your overall tax liabilities.  Consider your situation, and consult with an investment professional to determine if a Roth IRA is right for you.