Most people are nowhere near, ready to retire. In fact, 64% of Americans will likely retire with less than $10,000 in their retirement savings. One of the retirement investment options that are popular with people is the Roth IRA. What is a ROTH IRA, and who should have one? Continue reading to learn more.
Understanding What is a Roth IRA
Roth IRAs are similar to traditional IRAs since they allow you to make regular contributions and to invest them in bonds, stocks, and other investments. The thing that makes the Roth IRA a good option is that you pay taxes when you put your investment in, but don’t pay it when you withdraw your investment.
Other IRAs will cost you money in retirement, so if you aren’t keen on paying taxes when you’re retired, this might be a good option for you.
Why People Love Roth IRAs
The tax-free retirement income isn’t the only reason people love Roth IRAs. People also like that they can get their money out much easier if they’re in a pinch.
Traditional IRAs slap you with an income tax bill and a 10% early withdrawal penalty if you take money out before 59 1/2, but not Roth. As long as you don’t take out your earnings and only your contributions, you won’t see any of that hassle.
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Another positive for Roth IRA is that your heirs get better terms. When your heirs withdraw funds, they don’t have to pay taxes like they would with a traditional IRA.
Potential Drawbacks of Roth IRAs
If you don’t want to pay taxes upfront, this might not be the ideal investment strategy for you. Many people plan on being in a lower tax bracket when they are older and think it makes sense to pay taxes later. Depending on your situation, this can be a good option, but everyone’s finances are different. You might end up with a business that continues to earn a lot of money, even when you’re retired, which could put a hitch in your plans. If you’re making a lot of money, this might not be the best option for you.
Remember that if you make too much money, you won’t even be allowed to contribute, or you might have to reduce your contributions. With Roth IRAs, another problem for many people is that you have to set it up on your own. If you have a 401(k), your employer might set it up for you and encourage you to participate.
It can be a little bit of work, but if you set up automatic payments from your bank account, it’s not that bad.
What Is a Roth IRA? – Now You Know
Now you know about the answer, “What is a Roth IRA?” Instead of wondering what your next move is, you can make a decision on whether it is right for you or not.
Do you wish to know more about retirement investment? Continue through our site for more.