Retirement Planning: Know Roth IRA Basics

NEW YORK, Nov. 30, 2010 /PRNewswire/ — A Roth IRA (individual retirement account) is an ideal retirement planning option with top notch benefits. This account offers tax-free growth for people who are not eligible for an employer match 401(k) account. A Roth IRA is beneficial to individuals who can save more funds for retirement than the amount that their employer would match.

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There is no tax deduction available for a Roth IRA contribution. However, many people will get a tax deduction for their traditional IRA contributions. A traditional IRA is a type of individual retirement savings account in which contributions are tax deductible in the year that they are made. These funds will grow, tax deferred, until they are withdrawn.

The funds that are contributed to a Roth IRA will continue to grow tax free. No taxes are paid on the earnings, which do not even need to be reported to the IRS. Though money can be withdrawn prior to retirement, this is not recommended when retirement planning. When funds are withdrawn in retirement, there will not be taxes owned on the distribution. If an amount is withdrawn prior to retiring, taxes may be due.

There are some eligibility restrictions in regards to an applicant’s filing status and is modified to adjusted gross income. The income limitations change each year and should be researched to ensure guidelines are followed. There is also a time period when contributions can be made. When creating a financial plan, this should be taken into consideration. Funds can be contributed to the account between January 1 of a given year up until the tax deadline of April 15 of the given year. Multiple deposits can be made in smaller amounts to equal the maximum amount rather than just one large contribution.

Whereas 401(k) and traditional IRAs have an age to begin distributing money, there is no age in which money must be distributed for a Roth IRA. Thus, this type of retirement planning account is ideal for passing wealth to children and grandchildren.  

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