When considering the best retirement savings vehicle, financial experts suggest choosing the Roth IRA. Winnie Sun, managing director of the Sun Group Wealth Partners, recently said that “Roth IRA is like a golden egg.” She says everyone should contribute every year if they qualify for a Roth IRA account, calling it the “first route into retirement for people of all ages.”
According to Sun, if your household income exceeds the limit, you should consider going through a conversion from a traditional IRA to Roth IRA. Individuals with annual income less than $125,000 and married couples filing jointly with yearly income less than $198,000 can contribute up to $6,000 annually or $7,000 for those aged 50 and older. If your earnings exceed the limit, you can contribute to a traditional IRA with no income limits.
One major appeal of a Roth IRA account is that it allows individuals who have held an account for at least five years to make penalty-free withdrawals before retirement. Since after-tax dollars fund the account, withdrawals from the contributions are not taxed again. Earnings to the account are also not taxed if they are for a qualified withdrawal.
One of such qualified withdrawals is for the purchase of a first home. Roth IRA account owners can withdraw up to $10,000 for the purchase, which can be used as a down payment or closing costs for a home. Such qualified withdrawals come with the tax advantage of not paying income taxes or fees on an early withdrawal.
Another qualified withdrawal is that made by a beneficiary after your death. The Roth IRA is the perfect vehicle to transfer wealth from one generation to another, provided you have sufficient income and savings to support your golden age financially. Unlike traditional IRAs, Roth IRAs don’t come with required minimum distributions (RMD), so you can leave the money to grow to be left for your beneficiaries who will inherit it tax-free – provided they withdraw it within the first five years.
Other qualified withdrawals are those made by persons with permanent disability or when you reach age 59½. Non-qualified withdrawals that don’t meet the requirements may be subject to taxes and a 10% withdrawal penalty.
