Are you Considering a Roth IRA?

In today's society people are starting to worry more about how they are going to survive financially after retirement.  There are several great retirement plans out there.  Most of the bigger companies offer a 401k-retirement plan or a profit sharing plan.  Generally, smaller companies offer the 403b retirement plan.  Individual Retirement Accounts are another way to save for retirement. There are two types of IRA's. 

• The traditional IRA's require an individual to be under the age of 70 1/2. The person has to have an earned income, which means that rents or dividends cannot be counted as earned income.  There are penalties if money is withdrawn early from the IRA.  There are also minimum distribution amounts that have to be made.  These contributions are tax deductible. 
   
• The Roth IRA's do not have an age requirement, but instead, have an annual income requirement.  If you are a single person your income cannot be higher than $95,000 per year.  If you are married the income cannot exceed $150,000 per year.  Again, there is no age requirement, however, if funds are withdrawn from the Roth IRA before the owner is 59 1/2, there is a 10% penalty.  Unlike the traditional IRA, there are no minimum distribution amounts.  These contributions are not tax deductible.  One of greatest benefits from purchasing a Roth IRA is that if one decides to, they may choose to convert their traditional IRA into a Roth IRA.  In doing this, they can have tax free money without the early withdrawal penalty.  There may be a conversion tax for rolling it over, but in the long run it usually proves to be worth it. 

The only time that a traditional IRA proves to be a better choice than the Roth IRA is when the persons tax bracket is expected to be lower at the time of withdrawal than that of the contribution.

When deciding which IRA to go with, a person needs to consider what amount that they have to contribute.  A person needs to have compensation that is equal to the amount of contributions that they need to make.  Also, research on the web and talk to a financial planner about these and other options.  Each person has a different situation that requires different needs. If their employer already offers a 401k or 403b, they may want to max that account out before looking into another one. 

Recommended: Use your Self-Directed IRA, Roth or 401(k) Plan + Loans to buy investment property