Roth IRAs can be an amazing tool in retirement planning.
You know you need to plan for retirement.
You are not sure where to start.
There seem to be so many options.
You are not wrong.
According to a recent the balance article titled “9 Surprising Facts About Roth IRAs,” certain people will find Roth IRAs are a great option.
Roth IRAs can serve as emergency funds.
Emergencies come when you least expect them.
Emergencies are often expensive.
What happens if you do not have enough money in your checking or emergency fund to cover an unplanned cash call?
Are you out of luck?
If you have money in a Roth account, you could make withdrawals for these emergencies.
Would it trigger a penalty?
The contributions made in a Roth are not deductible.
If the money you take out does not exceed the amount you put in, you can make withdrawals without penalties or taxes.
This means if you put in $5,000 and it grows to $6,000, you should only take $5,000.
You could use a non-deductible IRA to fund a Roth.
There are income limits governing eligibility for a Roth IRA.
However, there may be an option for a “backdoor Roth.”
What is this?
It happens when money inside a non-deductible IRA is converted into a Roth.
Does it sound complicated?
It can be.
Do not try doing it yourself.
Work with an experienced professional.
Mistakes can be quite costly.
You may roll after-tax 401(k) contributions into a Roth IRA.
Do you have an employer sponsored IRA?
At retirement, could can role these after-tax contributions into a Roth IRA.
What about the investment gain?
This is not included in the deal.
Stick to the contributions.
Roth IRAs have no RMDs (Required Minimum Distributions).
For traditional IRAs you will be required to take minimum distributions once you reach a certain age.
With a Roth, there are no required minimum distributions because you already paid the taxes on the money contributed.
If you leave the account to a non-spouse, the heir will need to take distributions though.
You can contribute to both a SIMPLE IRA and a Roth IRA.
If you meet income requirements, you can contribute to SIMPLE IRAs and Roth IRAs.
Your SIMPLE IRA contributions will be tax deductible.
The Roth IRA contributions are not tax deductible.
These could allow you to get a tax break now and later.
This is especially beneficial if you are self-employed.
Your employer plan may allow Roth contributions.
If your employer offers a 401(k) with Roth contributions, it would be beneficial.
It is best to ask your HR department for specifics regarding your options here.
Age is not the key factor in determining whether to use a Roth IRA.
Income is important when determining whether a Roth is right for you.
If you expect your income be in a lower tax bracket in retirement, a traditional IRA may be better.
If you will be in the same or higher bracket, a Roth would be a wise option.
You might be able to make a spousal Roth contribution.
If you earn an income and your spouse does not, you can make contributions to a Roth IRA on their behalf.
This will increase your overall retirement savings as a couple.
Be careful about Roth conversions.
This is not DIY planning. Get help from an experienced professional.
He or she will help you to devise a strategy to best meet your retirement needs and goals.
Reference: the balance (August 13, 2019) “9 Surprising Facts About Roth IRAs”