Why I Chose a Roth IRA Account
IRA's (Individual Retirement Accounts) come in different kinds each with its own unique benefits and defects. I am currently contributing to a Roth IRA. Here's a few reasons why.
In 1997 the Roth IRA was invented to encourage American citizens to plan for retirement on their own rather than simply relying on their 401k from their employer or social security.When individuals plan for their retirement with their own savings and investments, it eases the strain on the social security system. This is why the government has made certain permissions for these types of accounts that benefit you if you use it for retirement planning. What are some of these permissions and how do they work?
For starters, the Roth IRA contributions are not tax deductible. And, most people would probably consider that a bad thing. But think about this. If you contribute the maximum allowed $5,000 (2008 Maximum for under $100,000 annual) from your income and don't pay taxes on it at time of contribution, then that $5,000 fund is really about a $4,000 fund. On the other hand, if you contribute that same amount to a Roth IRA and don't deduct it from your income tax form, then it is a true $5,000 fund. Which brings me to my next point.
Another cool thing about the Roth IRA is that funds can be removed after 5 years without penalties. And it will not be taxed since you never deducted it from your income. If you withdraw funds from a traditional IRA before 59 1/2 years of age you are liable for penalties and taxes. And actually the whole IRA will be taxed eventually anyway.
This permission for early withdrawal after the five year seasoning period makes it a great source for an emergency fund that everyone needs. So you can save for retirement while simultaneously putting back funds for emergencies like a new roof, or a new car. The allowances for early withdrawal are relatively lax compared to a traditional IRA.
The traditional IRA allows for early withdrawals of funds of certain amounts for very specific reasons. For example you are allowed up to $10,000 of your fund at any time to be used in the purchase of a home. The home buyer must be the owner of the IRA, their spouse or one of their children. Plus the Buyer must not have owned a home in the prior 24 months. The rest of the allowances are pretty complicated like this one and very strict.
I have been contributing to a Roth IRA for this purpose because it fits my needs very well. But how do you know which IRA is right for you? Everyone's needs and long term goals are different. The best thing to do is to consult a financial institute that you trust with your future.
In 1997 the Roth IRA was invented to encourage American citizens to plan for retirement on their own rather than simply relying on their 401k from their employer or social security.When individuals plan for their retirement with their own savings and investments, it eases the strain on the social security system. This is why the government has made certain permissions for these types of accounts that benefit you if you use it for retirement planning. What are some of these permissions and how do they work?
For starters, the Roth IRA contributions are not tax deductible. And, most people would probably consider that a bad thing. But think about this. If you contribute the maximum allowed $5,000 (2008 Maximum for under $100,000 annual) from your income and don't pay taxes on it at time of contribution, then that $5,000 fund is really about a $4,000 fund. On the other hand, if you contribute that same amount to a Roth IRA and don't deduct it from your income tax form, then it is a true $5,000 fund. Which brings me to my next point.
Another cool thing about the Roth IRA is that funds can be removed after 5 years without penalties. And it will not be taxed since you never deducted it from your income. If you withdraw funds from a traditional IRA before 59 1/2 years of age you are liable for penalties and taxes. And actually the whole IRA will be taxed eventually anyway.
This permission for early withdrawal after the five year seasoning period makes it a great source for an emergency fund that everyone needs. So you can save for retirement while simultaneously putting back funds for emergencies like a new roof, or a new car. The allowances for early withdrawal are relatively lax compared to a traditional IRA.
The traditional IRA allows for early withdrawals of funds of certain amounts for very specific reasons. For example you are allowed up to $10,000 of your fund at any time to be used in the purchase of a home. The home buyer must be the owner of the IRA, their spouse or one of their children. Plus the Buyer must not have owned a home in the prior 24 months. The rest of the allowances are pretty complicated like this one and very strict.
I have been contributing to a Roth IRA for this purpose because it fits my needs very well. But how do you know which IRA is right for you? Everyone's needs and long term goals are different. The best thing to do is to consult a financial institute that you trust with your future.
About the Author:
My name is Herbert Castillo and I am planning my retirement at age 21 with a Roth IRA Account I admonish all to plan for their future in their youth because it is the best possible time to do so.
posted by Debt Consolidation Loan at
1:49 PM
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