Rocketing national debt, unstable economy, high unemployment, and high inflation. These are all factors that have Americans on edge right now. What has the American public even more scared is the fact that the federal government has started to tap into public pension funds to pay for bankrupt social programs such as Social Security and Medicare.
So what’s a scared American to do? Well, that’s where individual Roth IRAs are king. The combination of a private retirement fund and tax free growth is music to anyone’s ears. I’ve said it time and time before that a Roth IRA is the fastest way to a million dollars for the average American. The biggest factor contributing to this is that your money is taxed from day one through your paycheck and is never taxed again with a Roth IRA.
A Roth IRA is truly the “king” of retirement accounts. Even 401k plans often pale in comparison. One of the only reasons why a 401k makes sense is because many employers contribute to your account. Let’s take a look at the tax benefit of a Roth IRA and why you should open one today.
ZERO taxation when you withdraw at retirement
This is the kicker for choosing a Roth IRA. Not having to pay tax on withdrawals like you would with a 401k is simply astonishing to me. As long as you are 59 1/2 years old and the account is five years old, you can withdraw any or all of your retirement savings tax free during your “golden years.” This means all money in will stay in and will utilize the magic of compound interest. With the uncertain economy a Roth IRA is a clear winner because who knows how high taxes will be 30, 40, 50 years from now…
You can remove your money invested at any time
If you are regularly putting money into your Roth IRA, you are able to withdraw your money invested without any penalty! Most people don’t realize this, but it’s a huge selling point. However, I don’t recommend doing this because you’re taking money away from your retirement account. But, at the end of the day, it’s nice knowing your principal is accessible unlike money in a 401k. what you’re NOT allowed to take out is the interest on your money. With a 401k you’re usually only left with a hardship withdrawal or a 401k loan. So, as long as you only take out money that you originally put it, you don’t get dinged with a tax penalty.
You can take it all out or leave it all in
No more worries about having to take out a portion of your money because of federal regulations. Now, with a Roth IRA, you can leave your money in your account and let it keep gaining interest during your retirement. This is a much appreciated feature because most people’s retirements last 15+ years. You don’t even have to spend the money if you don’t need it! Unlike a 401k or traditional IRA, you are required to make minimum distributions once you reach 70 1/2. If you have saved more than you had to, you can just leave the money in the accounts for your kids or whoever is set as your beneficiary. This is huge for out of the blue deaths or just giving your grand kids a gift of money.
No age limit, no problem
I love that anyone can open a Roth IRA and contribute as long as they have some sort of income. I first found out about them when I was 18 years old. Boy, am I glad I found out about them then! It’s great because you can open a Roth IRA for your kids and help the start investing at a young age and encourage stewardship habits early on. At any age, it’s easier than ever to convert your traditional investment vehicles to a Roth. If you’re young and in a relatively low current tax bracket I recommend switching and start enjoying tax free growth for life. Although there are potential pitfalls in converting, so make sure you understand the tax implications of doing a Roth IRA conversion.
Now that you know about the amazing tax benefits of a Roth-IRA, what are you waiting for? If you don’t have one, open one today. Here are a few great places to set up a free account:
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Filed Under: Retirement
About the Author: Jon the Saver is a personal finance writer at Free Money Wisdom. His mission is to help you succeed in your personal finance life. When Jon is not writing on personal finance, he spends time with his girlfriend, lifts iron at the gym, and plays Scrabble. You can subscribe to his site through EMAIL/RSS or you can also find him on Twitter and Facebook.