Benefits of a Roth IRA One of the best ways to save for retirement is with a Roth IRA. When you reach retirement age, you won't have to pay taxes on withdrawals. That can give your savings a powerful boost, especially if your tax rate is higher during retirement. As you can see, a Roth IRA can be a fantastic wealth-building tool if you combine its tax benefits with excellent long-term investments.
It is essential to match the Roth IRA with a portfolio of securities that can generate growth and reduce risks. You should also be aware of all the rules and provisions that govern Roth and, possibly, other types of IRA, since any error in the process could harm you or result in substantial penalties. A comparison of the wealth-building advantage of a Roth IRA with a traditional IRA can illustrate the power of the Roth IRA. While the best time to open a Roth IRA is when you're young and you have the magic of capitalization and interest on your side, it can also be a useful vehicle when you're older and want to deposit funds into an account that isn't subject to the minimum distribution rules required during the participant's lifetime.
Another feature of the Roth IRA is that there are no minimum distributions required, as is the case with a traditional IRA. In the family of financial planning products, the Roth Individual Retirement Account (IRA) sometimes resembles the great younger sister of the traditional IRA. If you don't name a beneficiary, your spouse (if he is your primary beneficiary) can choose to inherit your Roth IRA or transfer it to a Roth IRA in your name. Its generous provisions, described above, are so different from the original IRA that the previous version became known as the traditional IRA.
With a traditional IRA or 401 (k), on the other hand, the income required to contribute the same maximum amount to the account would be lower, since the account is based on pre-tax income. Also note that a Roth IRA is simply a tax-advantaged account that you use to invest; investments are those that carry risks.