You probably know a thing or two about saving money. Maybe you have an account with your bank or financial institution. You may even contribute to your company’s retirement savings plan, even if you don’t completely understand how it works. Yes, you are definitely on the right path towards financial success. However, to really save money for retirement and have full financial freedom in your future, you should consider investing in a Roth IRA. What is a Roth IRA? It’s an individual retirement account that combines two powerful benefits: compound interest and tax savings.
How Does a Roth IRA Work?
Many new investors ask the question: What is a Roth IRA? To really delve into the savings power this retirement option can provide you, you’ll have to start with the basics. Here are some of the most frequently asked questions regarding Roth IRA’s. Once you understand these, you can master the art of saving money.
Who Can Invest in a Roth IRA?
Anyone who receives taxable income can invest in a Roth IRA. You must be earning some type of an income in order to contribute, and you can’t contribute more than your compensation. Compensation means wages, tips, salaries, fees, commissions, bonuses, taxable alimony and more. If you are married, both husband and wife can have a separate IRA account, even if only one spouse is employed.
What Are the Tax Benefits?
With a Roth IRA, you pay taxes up front, at the current rate. This is because the money you are contributing is from your wages, so it was already taxed prior to receiving your paycheck. This can be a great benefit to you because it allows your contributions to grow without any further taxing, even when you withdraw them. If you hope to grow your wealth in the future (and really, who doesn’t?), you will likely be put into a higher tax bracket, which makes the Roth IRA a very favorable option to open now.
Who is Eligible?
There are some restrictions on who can contribute to a Roth IRA. These restrictions mostly have to do with income level, and if you make too much money, you can’t contribute to a Roth IRA. However, if you fall into the median household income level along with most Americans, you are eligible to contribute. If you are single, you need to make less than $164,000. If you are married, your joint household income needs to be less than $183,000.
If you are single and make between $116,000 and $131,000, or if you are married (filing jointly) and your income falls between $183,000 and $193,000 you are eligible to make a partial contribution.
How Much Can You Contribute?
There are a couple Roth IRA restrictions you should be aware of when you think about contributing. The rate you can contribute may fluctuate from year to year, so be prepared for that. For this past tax year of 2015, the maximum amount allowed for contribution was $5,500. If you are age 50 or older by the end of that calendar year, you are allowed to contribute $6,500. The only catch is if you earned less than the maximum amount allowed to contribute. So if you only earned a total of $2,500 for the tax year 2015, you could only contribute a total amount of $2,500 into your Roth IRA.
What Are the Best Benefits of Roth IRA?
Obviously one of the biggest benefits of Roth IRA is the tax perks, but there are also several other benefits that may help you decide to open one. Here are just a few of the ways a Roth IRA can benefit you financially.
Big Savings for Retirement
With a Roth IRA, you can make contributions to your account even when you are retired, as long as you continue to hold a job (no matter what job it may be) and you stay within the income levels. The only time you cannot continue investing in your Roth IRA is when you have reached the age of 70 1\2.
A Wealth of Flexible Options
Not only do you have a lot of options when it comes to choosing what to invest with your Roth IRA, but you also have a lot more control than a typical employer savings program. With a Roth, you can choose to invest in almost anything, including gold and precious metals. This investment strategy has risen in popularity lately, and for good reason. Investing in gold diversifies your portfolio and balances out your paper currency options. Speak with an experienced representative from Regal Assets to learn more.
You are also able to withdraw your contributions without any taxes or penalties, although there may be a couple stipulations to this. Normally, you have to hold your Roth account for a minimum of five years and be age 59 1\2 before you can withdraw all the earnings without any penalties at all. Of course, there are exceptions to every rule, including that one. Death and disability allow you to withdraw up to $10,000 in order to purchase your first home. You can also avoid paying the 10 percent penalty fees for early withdrawal if you use the money to pay higher education costs. These withdrawals may still incur income taxes.
Avoid Mandatory Withdrawals
With a Roth IRA, you don’t have to deal with mandatory withdrawals like you would with a traditional IRA. Meaning you can continue to grow your money for as long as you would like. There may be a couple Roth IRA restrictions you should be aware of, and for that you should speak to an expert.
Still Have Questions?
If you are still asking yourself “what is a Roth IRA?” it’s time to speak to a professional at Regal Assets. They can answer any questions or concerns you have and speak with you about all the options available. One of the best options may be to invest in gold or other precious metals, and the team at Regal Assets can show you how gold can diversify your portfolio and provide balance in your investment strategy. Go to www.regalassets.com to learn more.