Roth IRA

Should I Get a Roth IRA?
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Quick Definition:

A Roth IRA is an individual retirement account with different tax advantages from the traditional IRA. The money you contribute to a Roth IRA is not tax deductible, but when you reach retirement, you are not taxed on your withdrawals. The contribution limits are the same as a traditional IRA, and if you have a traditional and Roth IRA, then you still can only contribute $5500.00 a year total to both of your IRAs.

What Are the Advantages of a Roth IRA?

The advantage of the Roth IRA is that your withdrawals will be made tax-free. This means that you will not have to pay taxes on the money that your Roth IRA earns over the years that you contribute to it. You will need to decide which choice is better for you in the long run, but generally paying taxes on the money now will save you as your Roth IRA grows larger over time. This means that you will pay taxes on a smaller amount of money. However, your tax rate may be lower when you retire. 

Where Can I Open a Roth IRA?

You can have Roth IRA be either a bank IRA or a brokerage house IRA. You will earn more money over time if you choose mutual funds as your primary investment focus as opposed to the CDs that your bank will offer you. Either choice should allow you to make monthly contributions to the IRA. If you want to reach the $5,500 limit, you will need to contribute $458.33 a month to the IRA.

If you do not have that much currently available to you, you can start with a smaller monthly amount and work your way up.

How Does a Roth IRA Fit into My Retirement Planning?

If you are eligible for a retirement plan through your employer, you may want to start by using that plan and taking advantage of the employer match that they offer.

After that you can contribute to the IRA, and then go back to your retirement plan to reach your monthly contribution goals. You can increase the amount you contribute to retirement easily but adjusting your monthly contribution when you receive a raise.

If you are self-employed, or if you do not yet qualify to contribute to your 401(k) plan at work, then opening up a Roth IRA is a good option for you now. When you are self-employed, you qualify for additional self-employed retirement account options, that can increase the amount you contribute to retirement each year. It is important to be proactive about saving for your retirement.

Remember that the biggest advantage of choosing a Roth IRA is that it will save you money on taxes in the future. You can also use it to start investing at a brokerage firm, since many of them will waive the minimum deposit requirement amounts for this type of account. You can talk to a financial planner to learn more about the type of investments you should use in your retirement accounts. The sooner you start saving for retirement, the less you will need to worry as you get older. 

Should I Roll My 401(k) into a Roth IRA?

When you change jobs, you have the option of rolling your 401(k) into an IRA.

This will give you more control over your retirement account, and it can make it easier to track your retirement because you can consolidate accounts. If you have a Roth 401(k), you should definitely roll it into a Roth IRA. However, if you have a traditional 401(k), you most likely will want to roll it into a traditional IRA. If you roll it into a Roth IRA, you will be required to pay the taxes on the money now, and you will be penalized if you pull out of the 401(k) to pay the taxes. This means that you may end up losing money. It is best to roll your 401(k) into the same type of IRA.