Reading this ‘Roth IRA for Dummies‘ primer is important for those thinking about opening a Roth IRA. It is not something that should be done on a whim, and certainly not before understanding what the key benefits are. Roth IRA For Dummies. It is also advisable to know the differences between traditional and Roth IRAs.
As the name implies, the Roth IRA is one of the types of individual retirement accounts. Roth IRA For Dummies. The main thing which sets it apart is that instead of offering tax deductible contributions, a Roth’s tax benefits are at the other end, with tax free disbursements. Simply put – contributions are taxed, withdrawals are not.
This is a unique ‘no-tax on earnings’ arrangement, and is even more popular because it allows for contributions to be made even after age seventy & a half. Neither are there any limitations on the disbursements. Roth IRA For Dummies. The account holder can choose to allow the funds to grow tax-free for life without taking any disbursements whatsoever.
Another big advantage a Roth IRA has is that the range of investments possible is much wider than in the traditional type. Roth IRA For Dummies. Roth account holders can choose to invest in everything from stocks and bonds to mutual funds and real estate. This is, of course, subject to the fact that the trustee where the account has been opened offers these and other investment options.
While it looks extremely promising, it is also essential to keep in mind the rules and regulations that govern Roth IRAs. The account has to be explicitly designated as a Roth IRA when it is opened, and only those who satisfy the eligibility criteria based on income may do so. Roth IRA For Dummies. There are also strict rules in place for people who wish to convert a regular IRA into a Roth, including a 5-yr seasoning period.
Also, Roth IRAs have contribution limits that are based on taxable compensation, upto a maximum allowed contribution that changes each year. Roth IRA For Dummies. It also takes into account the age of the account holder and inflation. So the limit for 2010 is $5000, but those aged 50 and above can top that off with another $1000.
Roth IRA For Dummies. – The bottom line regarding Roth IRAs is that it has a lot of potential as a retirement fund vehicle. The account holder has much more control over investments and disbursements than other plans. Roth IRA For Dummies. There is, of course, the fact that with the key tax benefits deferred until disbursement, the account holder is essentially putting all the eggs into a basket in the future.