No matter your age, income, or social status, it’s essential that you start preparing for your retirement before it’s too late. With current trends, future generations can expect to be spending more and more of their own money to cover the rising costs of retirement as Social Security funds dwindle. A Roth IRA can help you to save for your retirement, building a healthy nest egg that can pay for food, housing and healthcare services after you’ve stopped working.
What is a Roth IRA?
A Roth IRA is a special retirement account where money contributed to the fund is taxed, but money withdrawn is tax-free. When you’re living off your savings and every penny counts, this can mean the difference between being able to pay for vital medical care or not. Eligible individuals under the age of 50 can contribute up to $5,500 to a Roth IRA account, while seniors over 50 can contribute $6,500. Eligibility is based on a household’s total income:
- Single households making $118,000 or less can contribute the full amount to their Roth IRA.
- Single individuals making between $118,000 and $33,000 annually may be able to contribute a reduced amount to a Roth IRA.
- Married couples making $186,000 or less can contribute the full amount to a Roth IRA.
- Couples who make between $186,000 and $196,000 may be able to make a partial contribution to a Roth IRA.
If you have a Roth IRA, you can continue to make contributions as long as you stay within the set income limits. Even after age 70 ½, you can continue contributing your earnings to your retirement account.
What are the Benefits of a Roth IRA?
A Roth IRA is more flexible than traditional IRAs. Although you cannot withdraw earnings, you can withdraw contributions at any time without facing a penalty, if you have a qualifying reason such as:
- Paying college tuition, whether it’s for you, your spouse or your children
- Covering excessive medical bills
- Buying your first home
- Coping with sudden disability expenses
While it’s easy to withdraw money from a Roth IRA, it’s not obligatory. Unlike traditional IRAs, which require owners to make regular withdrawals after hitting age 70 ½, Roth IRAs can sit and grow. You can bequeath your Roth IRA to an heir, and while they won’t have to pay any income taxes on the inherited funds, they are required to take distributions over the course of a lifetime instead of receiving the money a lump sum.
This article entitled “Retirement Planning: Invest in Your Future with a Roth IRA” was written by Jenny Holt forwarded to Retirement Planning IQ via email.
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