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The Anatomy of a ROTH IRA

Unfortunately the numbers aren’t real impressive when it comes to the number of Americans who have saved well for retirement. According to a new Employee Benefit Research Institute survey of 1,003 workers age 25 and older and 251 retirees, 49% of workers say they doubt their ability to afford a comfortable retirement and 28% of employees say they don’t feel confident at all about their retirement prospects. Saving for retirement seems to be a discussion many need to have. There are different ways to save for retirement, but we are going to focus on one in particular in this post.

A ROTH IRA is one of the most popular retirement vehicles used today. It has become a favorite among advisors primarily for its tax friendly benefits. Even if you already have an employer sponsored retirement plan, a ROTH IRA can be another excellent tool to complement your existing retirement savings strategy. Below are the primary positive characteristics of a ROTH:

  • Earnings and withdrawals are generally tax-free
  • Unlike traditional IRAs, ROTH IRAs don’t require withdrawals during the owner’s lifetime
  • Beneficiaries of ROTH IRAs don’t owe income tax on withdrawals and distributions can be stretched out over many years
  • They allow owners to take penalty – free qualified distributions at age 591/2, but the first contribution must be at least 5 years before qualified distributions begin
  • After 5 years, up to $10,000 of earnings can be withdrawn penalty – free to cover first time home buyer expenses
  • You can contribute to a ROTH as long as you would like

There are a couple of limitations that should be pointed out as well:

  • There are no tax breaks for contributions to a ROTH IRA
  • Unlike traditional IRAs, ROTH IRAs are subject to income – eligibility restrictions. Click here for a detailed chart of the 2013 income contribution limits.

If you are interested in opening a ROTH IRA, ask your financial advisor or give us a call.If you would like to do your own research, check out www.mint.com/ira-center. It is a great place to compare institutions and view minimum deposits, annual fees, etc.

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retirement planning guide from geier