Roth IRA

A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. Roth IRAs are a special retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax-free. 

5 Benefits of a Roth IRA


Tax-free withdrawals in retirement

The greatest benefit of a Roth IRA is that you are not taxed on withdrawals. You must be 59½ or older and have held the account for at least five years to make those tax-free withdrawals. 

  

Tax-free earnings

Your account earnings will grow tax-free through your investment account. You can invest into your Roth IRA with the same strategy as your brokerage account. The interest money earned grows and can be transferred tax-free (with the above age restriction).  

 

Access to your money if you need it

You can withdraw money that was contributed to a Roth IRA without tax penalty since you have contributed to this account with post tax money. Your earnings (dividends) will be taxable until you reach age 59½. 

 

No obligation to begin withdrawing

Roth IRAs have no required minimum distributions during your lifetime. You get to enjoy the flexibility either to use some or all of the money for your retirement or let it grow for your children.

 

Generational wealth

A Roth IRA is a good choice if you want to pass money on to children and/or grandchildren without tax penalties. That is not the case with a traditional IRA—heirs will owe taxes on withdrawals.

Difference between Roth and traditional 401k

  1. 401k accounts are pretax contributions while Roth IRAs are post-tax

  2. 401k accounts are employer-sponsored while Roth IRAs can be opened without restrictions

  3. Employers often offer a percentage match for contributions into 401k accounts. Roth IRAs do not have this feature

  4. By age 72, you must start withdrawing money from your 401k to avoid penalties. Roth IRAs do not carry this restriction

  5. 401k investments are controlled by a 3rd party admin; while Roth IRAs are controlled by the account owner

Contributions

401k: For 2021, $19,500 per year ($26,000 per year for those 50 or older). Additional contributions limits may apply to Highly Compensated Employees (HCEs).

Roth IRA: For 2021, $6,000 per year ($7,000 per year for those age 50 or older).

“Your best investment is yourself. There is nothing that compares to it.” -Warren Buffet

With all investments, please perform research and choose the right investment option that’s best for your current/future needs.