How much do you know about the Roth IRA?

Of the most popular retirement plans in the United States, we can safely say that the Roth IRA is one of the most preferred by all. Retirement is supposed to be a peaceful and happy event in your life. After a hard working life, you deserve to slow down, take a break, and do all those things you always wanted to do but never had the time or money to do. It’s the last chance you get to put some cuts and crosses on that wish list you wrote as a young person with lots of dreams.

Retirement planning is not an easy task. It takes a lot of thought, choice, and decision-making to get it right. But it is essential for every responsible person to know and understand it as a debt to himself. There are many options to help you better plan for your retirement. One of them is the Roth IRA mentioned above.

The Roth Individual Retirement Account, commonly known simply as the IRA, was founded in 1997 by the Taxpayer Relief Act. This plan is part of the few plans that allow tax reduction under the United States tax law. The difference between the Traditional IRA and the Roth IRA is that contributions made to the Roth account are not tax deductible. In the case of traditional IRAs, there are certain penalties that must be paid in case of early withdrawals, but these rules are not as strict when it comes to Roth IRAs.

The distributions that you have made to the Roth account can be withdrawn by you, without any additional payment as a penalty, while in traditional IRAs, in addition to the tax, you also have to pay 10% of the money withdrawn. Roth is also considered popular because of the fewer restrictions it places on the type of investments than other retirement plans.

Funds in your Roth account can be used to purchase a variety of investments. You can invest in real estate, mutual funds, certificates of deposit, and many more areas that you can choose from. The contribution to your account, of course, has a limit. For single taxpayers it is $95,000 and for married couples who contribute jointly it is $150,000. You can withdraw these contributions at any time without any tax penalty.

Like everything, the coin has two sides. For Roth IRA there are also many limitations, advantages and disadvantages. For example, if a person with a Roth account dies; your spouse is the beneficiary of the person’s account. If the beneficiary also has an account, he can merge both accounts without any teenagers. One of the main disadvantages is the restriction on income limits. After a certain point, you have to stop making your contributions. But in traditional, there is no such limit.

Whichever plan you choose, it is very important that you start as soon as possible, as this choice can determine your retirement status in life.