Five Ways a Roth IRA Can Benefit You

Retirement planning often involves a sea of complicated decisions, and we find ourselves tempted to compare each savings solution to all of the others. Way to bog yourself down in endless questions and comparisons! A simpler way might be to simply take a look at the merits of each savings vehicle independently, to see if it appeals to you. Then, we can talk about how to incorporate it into your portfolio.

There are too many benefits to a Roth account to list in a single blog, but they boil down to five major reasons that you should at least consider this type of retirement account.

You contribute after-tax money to a Roth IRA. Let’s say you already contribute to a 401(k) account, and enjoy the maximum tax savings each year. You can’t contribute any more to that account, but you can direct some after-tax dollars to a Roth IRA.

You will enjoy tax-free income in retirement. Because contributions were made on an after-tax basis, your future withdrawals will be free of income taxation.

A Roth IRA can help you hedge against tax hikes. It’s impossible to know how the IRS tax code will change in the future. Let’s say you retire one day, and you’re lucky enough to be in one of the higher tax brackets. Then Congress passes a law that taxes high-income individuals at 60 percent. Ouch! That scenario is a bit extreme and unlikely, but you get the point. With retirement income that is non-taxable, you can hedge against any future tax hikes.

Roth IRAs might be better for estate-planning purposes. A Roth IRA can be passed directly to an heir when you die, bypassing the probate process. Then, the recipients have the option to cash out the account, or roll it into their own IRA.

You can contribute to a Roth account after the calendar year is over. It’s early spring, and you realize that you didn’t contribute the maximum to your Roth account last year. You can still make the contribution by April 15, and count it for the previous year.

Roth IRAs are subject to certain income limits, which might lead you to believe that you can’t take advantage of this savings opportunity. But a loophole in regulations does allow you to convert a traditional IRA into a Roth account. For more information on conducting a rollover, or to learn more about Roth IRAs, give us a call. We’ll be happy to help you weigh your options.