Planning for retirement can give anyone a headache. There is no one-size-fits-all retirement investment vehicle, and there are so many options that the media is telling you put your money into. Many people throw their hands up and entirely rely on the retirement account provided by their employers. Before you do this, I would encourage you to speak with a professional to weigh your options and consider diversifying your retirement plan. One increasingly popular retirement vehicle to ask about is a Roth IRA.
Elements of a Roth IRA Account
A Roth IRA is a relatively new investment retirement account that should not be confused with a traditional IRA. Consider the following.
- You contribute after-tax income into a Roth IRA, but unlike a traditional IRA, these contributions are not tax-deductible.
- You have considerable flexibility in how you invest the money in the account.
- A Roth IRA has no age limit, so even your teenager earning minimum wage during the summer can contribute to their own IRA. In fact, the younger you start, the more you can earn over time.
- The maximum annual contribution is $5,500, until the age of fifty, when the limit increases to $6,500.
- You must make an adjusted gross income of less than $118,000 individually or $186,000 as a married couple to make maximum contributions to the Roth IRA.
- You can still make partial contributions if your income is between $118,000 and $133,000 individually or $183,000 and $193,000 if married. You cannot make contributions if your gross income is greater than $133,000 individually or $193,000 as a married couple.
- You can access the money without penalty at the age of 59 and ½ years of age. The penalty prior to this age is a 10% tax of any early distribution.
- Earnings from your Roth IRA after the age of 59 ½ are tax-free.
- There is no mandatory age at which you must begin taking distributions from a Roth IRA. In contrast, with a traditional IRA account, you must take distributions beginning at age 70.
A Roth IRA obviously is not for everyone. For the short term, there is no immediate tax benefit as you are contributing already-taxed income, and cannot deduct your Roth IRA contributions on your tax return. However, a Roth IRA offers tremendous flexibility in when you want to begin contributing, how you want to invest the contributions, and when you want to receive tax-free distributions in the future.
You Need an Attorney
While retirement account options are complex, an experienced advisor can consider your income, your earning potential, your assets, and your goals and provide you with custom tailored advice. Contact the Law Office of Robert S. Thomas. I have over twenty years of experience in the areas of estate planning and tax law and can help you plan for your financial future. Contact our offices today at 847-392-5893 to schedule a consultation or visit our website today.