Roth

WHAT IS A ROTH?

A Roth is an individual retirement account that could be an attractive addition to your portfolio, because one key benefit is that its distributions may be tax-free, if certain conditions are met. This could be a plus in your retirement years.

Unlike the traditional IRA, there are no age restrictions for making Roth contributions, as long as you have earned income. Which makes this a great investment vehicle to consider for investors just starting to work. Roth IRAs are funded with after-tax money, but grow tax-free until the funds are distributed. Distributions are tax-free as long as you have owned the account for at least five years and are over age 59½. Other qualifying events include death, becoming disabled, or being a qualified first-time home buyer using the distribution for the purchase of a primary residence.

IS A ROTH IRA OR A TRADITIONAL IRA THE RIGHT CHOICE FOR ME?

Each individual investor will have different circumstances and so to determine if a Roth is right for you depends. “A Roth account is a good choice if you are young and in a low tax bracket.” says Debbie Craig

Some common questions I receive from clients are answered in this diagram below:

Your particular circumstances regarding:

  • Eligibility – your employment status may determine which IRA type is a better fit
  • Catch Ups – depending upon your age you may be eligible to increase your annual contribution
  • Penalties – certain distributions are not subject to an early penalty withdrawal
  • Deductibility – you may be able to deduct your contribution for tax purposes
  • Taxation – your current tax rate may determine which IRA type is the best fit
  • Transferability – need to have a conversation about your 401(k) or other qualified plan?
  • and more!

will also determine which retirement tool fits optimally into your plan.

Click here to learn what the contribution limits are for a Roth IRA.

If you are unable to contribute to a Roth due to income restrictions or you believe your tax rate is lower now than it will be in retirement, you may want to consider a  Roth conversion.  Contact me to discuss if a conversion is right for you.