Since today is the tax filing deadline I thought it would be a good time to promote the benefits of the ROTH IRA.
ROTH IRAs are one of the most versatile and flexible accounts for accumulating retirement assets, but these 5 benefits set it apart:
-
Taxes – ROTH IRA contributions are not tax deductible, but the investment earnings grow tax free and withdrawals after age 59 ½ are tax and penalty free.
-
Distributions are not required – This means that the ROTH IRA provides a great way to allow investment returns to compound for long periods of time and can be a useful vehicle to pass money to heirs. Beneficiaries can stretch withdrawals over their lifetime and receive distributions tax-free.
-
Contributions – You can make ROTH contributions at any age as long as you have earned income.
-
Tax flexibility in retirement – Mixing how you take withdrawals between your traditional IRAs and 401(k)s, or other qualified accounts, and Roth IRAs may enable you to better manage your overall income tax liability in retirement.
-
Eligibility for college financial aid – When applying for college financial aid, the FAFSA (Free Application for Federal Student Aid) does not consider retirement accounts as assets when determining how much a family is expected to pay for college. This applies equally to Roth IRAs owned by parents or kids.