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.
The Roth IRA was implemented in 1997 as a way to encourage the American people to start planning for their retirement in their youth rather than relying solely on their 401k plan or social security. By encouraging individual retirement planning, ultimately they would ease the strain on social security by only using it for those who really needed it. How do they encourage people to use the Roth IRA? What benefits does it provide over the traditional IRA?
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.
Second, after funds have been in the Roth IRA for 5 years, they can be withdrawn with no penalties or taxation. There are penalties and taxes applied to any withdrawals from a regular IRA before you hit 59 1/2 years old.
I like the Roth because I am young and occasionally have emergency needs (ie. new car, new roof). Since you are allowed to withdraw funds after 5 years, you can use it for any of these emergencies you may fall into. I am planning for retirement, and if ever the need arises I have the funds to cover emergencies too. Nice huh?
There are a few very strict withdrawal permissions that allow early withdrawal from a traditional IRA. For instance: You can use up to $10k from the account before 59 1/2 years of age for the purchase of a home. But as I mentioned before the rules are very strict. The buyer must be either the IRA holder, their spouse or a child of the holder, and they must have not owned a home in the previous two years. the other allowances follow suit with the strict circumstantial rules.
The Roth IRA suits me and my circumstances. But each person has their own goals and needs. So to find out which IRA is right for you, talk to a financial consultant about the options. Ask plenty of questions so that you can make an educated decision.
The Roth IRA was implemented in 1997 as a way to encourage the American people to start planning for their retirement in their youth rather than relying solely on their 401k plan or social security. By encouraging individual retirement planning, ultimately they would ease the strain on social security by only using it for those who really needed it. How do they encourage people to use the Roth IRA? What benefits does it provide over the traditional IRA?
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.
Second, after funds have been in the Roth IRA for 5 years, they can be withdrawn with no penalties or taxation. There are penalties and taxes applied to any withdrawals from a regular IRA before you hit 59 1/2 years old.
I like the Roth because I am young and occasionally have emergency needs (ie. new car, new roof). Since you are allowed to withdraw funds after 5 years, you can use it for any of these emergencies you may fall into. I am planning for retirement, and if ever the need arises I have the funds to cover emergencies too. Nice huh?
There are a few very strict withdrawal permissions that allow early withdrawal from a traditional IRA. For instance: You can use up to $10k from the account before 59 1/2 years of age for the purchase of a home. But as I mentioned before the rules are very strict. The buyer must be either the IRA holder, their spouse or a child of the holder, and they must have not owned a home in the previous two years. the other allowances follow suit with the strict circumstantial rules.
The Roth IRA suits me and my circumstances. But each person has their own goals and needs. So to find out which IRA is right for you, talk to a financial consultant about the options. Ask plenty of questions so that you can make an educated decision.
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
2:16 AM
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