FAQ On Roth IRAs
If you need a way to put money aside for retirement and enjoy a significant tax break, a Roth IRA can be a good choice. Roth IRA accounts allow you to build a nest egg you can tap tax-free when you retire, making these plans a good choice for anyone who expects tax rates to be higher in the future than they are now.
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How is a Roth Different?
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When you contribute to a traditional IRA, you get a tax deduction for the amount you put in, but you must pay taxes when you start withdrawing the funds in retirement. When you choose a Roth IRA instead, you do not get that tax deduction, but you can take the money out tax-free when you retire. That makes a Roth IRA a good choice for younger workers, since those workers have many years to let the money grow and compound.
When Can I Access My Money?
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You can begin withdrawing money from your Roth IRA when you reach the age of 59 1/2. After you pass that age, you can begin to take distributions from your account to supplement your income and provide the cash flow you need in retirement.
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What Can I Invest in?
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The Roth IRA provides a great deal of flexibility when it comes to investing. If you open a Roth account with a brokerage firm, you can use it to purchase individual shares of stock. A Roth IRA makes a good vehicle for individual stock investing, since there are no tax consequences when you buy and sell. You can also choose to invest your Roth IRA funds in a more diversified manner by choosing mutual funds instead of individual stocks.
How Much Can I Invest?
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The IRS sets the contribution limits for Roth IRA accounts each year, and it is important to check the IRS website for current limits before you invest. For 2011, you can invest up to $5,000 in your Roth IRA if you are 49 years of age or younger. If you are 50 or older, you can contribute an extra $1,000 to your account. You can invest your Roth IRA funds as early as the first trading day of the year, or as late as the tax filing deadline.
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