Investing Basics: How a Roth IRA Can Benefit You

how a Roth IRA can benefit youPlanning for your retirement is not something you want to leave for the last minute. In reality, you should begin saving for retirement as early as possible. Many methods will help you plan for the golden years, some better than others. You’ve likely heard of an IRA account, but have you heard of a Roth IRA?

A Roth IRA investment is an after-tax retirement account, similar to 401(k)s and traditional IRA accounts. These accounts are most suitable for low to middle-income families who find some appeal in the flexibility a Roth IRA offers. Whether you’ve heard about it or not, a Roth IRA account is something you should strongly consider. Let’s see how this retirement investment can really boost your savings quicker.

How a Roth IRA Can Benefit You

Planning for your retirement is not something you want to leave for the last minute. In reality, you should begin saving for retirement as early as possible. Many methods will help you plan for the golden years, some better than others. You’ve likely heard of an IRA account, but have you hear of a Roth IRA?

A Roth IRA investment is an after-tax retirement account, similar to 401(k)s and traditional IRA accounts. These accounts are most suitable for low to middle-income families who find some appeal in the flexibility a Roth IRA offers.

Whether you’ve heard about it or not, a Roth IRA account is something you should strongly consider. Let’s see how this retirement investment can really boost your savings quicker.

How a Roth IRA Works

A Roth IRA is still an individual retirement account. However, where it varies is that it’s not tax deductible. The appeal, though, is that you can withdraw money tax-free. Think of it as pre-paying your taxes now so you can forget about them later on.

Benefit 1 – Tax-Free Withdraws

Let’s focus on the tax-free withdraws first. Although it may seem like a Roth IRA isn’t as good as other investment accounts up front, since you don’t receive the tax break like a traditional IRA. However, think about your life during retirement when you don’t have the steady income you likely have right now. Every dollar will count.

When you invest in a Roth IRA, you receive the tax break when you withdraw the money. Traditional retirement savings accounts require you to pay a percentage of taxes on any money you withdraw. So, when losing a portion of your money could end up causing you to struggle with finances, you’ll be thankful you have a tax-free withdraw account.

Benefit 2 – Stay in a Low Tax Bracket

Still focusing on the tax-free withdraws, a Roth IRA account will also help keep you in a lower tax bracket. The more taxable income you receive, the higher tax bracket you enter and the more money you will pay in federal taxes. By lowering the amount of taxable income you get in your retirement years, through a Roth IRA account, you’ll have less taxable income coming in (even though you’re not receiving less money). It’s because that withdrawal is tax-free and does not increase your taxable income.

Benefit 3 – Social Security Benefits are Non-Taxable

Benefit three can be a huge factor for investing in a Roth IRA. Social Security benefits for retirees is usually quite substantial. It’s additional income to help you through your retirement years. There are other ways you can help keep control of your finances if your Social Security benefit gets declined, or you could invest in a Roth IRA account.

Because your Roth IRA account is tax-free when withdrawing funds, it won’t count as taxable income. This will help keep you in a lower Social Security benefit taxation threshold as well, meaning you are less likely to have higher taxes on your Social Security benefit.

If you are thinking of investing in a Roth IRA account, there are a few rules to know. The money you contribute must come from earned income. That means you cannot add money if someone gifted you money. Also, you can only contribute what you’ve earned in that year and no more.

Setting up a retirement plan is critical. Without one, you could find yourself having to work years past would you initially hoped for, and not having the time to live out the rest of your life. Your retirement years should be some of the best years because you are free to do basically whatever you please. Start planning your retirement with a Roth IRA account to help your future self out. Fewer taxes means more money in your pocket when you need it the most.

About the writer: Jeremy Biberdorf is the owner & founder of the popular investing blog modestmoney.com.  Check out his site for latest investing news and tips

Stay Connected with The Frugal Toad

Subscribe to our e-mail newsletter to receive updates.

, , , , , , , , , ,

No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

CIT Bank Money Market Account