Roth IRA

Category: Finance, Financial Planning.

Investing for retirement may not seem important yet for someone who is still in their early age.

It might be too late then as you will not get the most out of your investments anymore. But once that age of retirement is reached, then you will feel the need to do so. For those who want to start investing for their future, one of the most popular choice is the Individual Retirement Accounts. These two investment tools defer the taxes on your contributions until retirement. There are two options to choose: Traditional IRA and Roth IRA. There is a wide range of investment options available for both including stocks, and bonds, mutual funds.

Traditional IRA contributions are tax- deductible, with some restrictions. Traditional IRA. Your withdrawal upon retirement will be taxed just like an ordinary income. Traditional IRA is good for you if you think that your tax rate at retirement age will be lower than your current tax rate and if you do not plan to withdraw your money before retirement age. But if you choose to withdraw the money before age 59 �, you will have to pay tax upon withdrawal plus a 10% penalty. Since Traditional IRA is tax- deductible, there is no minimum required contribution. It will increase to$ 5000 by the year 200You can make contributions until you reach the age 70 �.

The maximum, is currently, though$ 4000 or 100% of your annual taxable compensation, whichever is less. Beyond that, you will not be allowed to make any payments. Contributions for the year are can be made from January 1 of the year until the tax filing day of the following year, which is the absolute deadline. When you reach age 50 and you want to catch- up on your contributions, you can do so by adding$ 1000 to the current maximum limit. You can start getting funds from your Traditional IRA account once you reach age 50 � without any penalty. However, you are required, after 70 � to withdraw a minimum amount annually. From that age until 70 �, you have the flexibility on how much you want to withdraw or opt not to withdraw yet.

Withdrawing just the minimum amount will let your balance in the account continue to earn interest tax- deferred. Roth IRA contributions are not tax- deductible but withdrawals after age 59 � will be subject to federal taxes. Roth IRA. Also, you are allowed to withdraw your contributions( not the interest) anytime without having to incur penalty. Also, if Traditional IRA does not qualify you due to your high income, Roth IRA is a good alternative. Roth IRA is best for you if you think that your tax rate will be higher upon retirement age, you may need the money before age 59 �.

There is no age limit with Roth IRA. Also, you are allowed to make contributions even beyond 70 � as long as there is still compensation. If a minor child already has a compensation for the year, a parent or guardian may file Roth IRA for the child. The maximum limit of contribution is the same as Traditional IRA, as well as the catch up contributions. Other investments for retirements are also available. You can also withdraw your contributions at any time without penalty.

Most companies offer retirement plans as part of the benefits their employees receive. It is really best to start making investments and saving for your retirement. These IRAs can still be availed even if you have other retirement investments or plans. The earlier you start, the better as your savings will earn more interest once you reach your retirement age. It is never too early to start saving. So, do not discount the fact that retirement is still several years from now.