Established in 1997 by the Taxpayer Relief Act and named for the bill’s chief sponsor, Senator William Roth, the Roth IRA is a great way for taxpayers to give themselves a “vaccine shot” against future taxes. The main difference between a Roth IRA and a traditional IRA is that Roth IRAs require taxes to be paid when contributing to the account, rather than when withdrawing from it. With a traditional IRA, the account holder must pay taxes when taking distributions.
Advantages of a Roth IRA
- Interest earned is not taxed when withdrawing (once you reach age 59½ and the five-year “seasoning period” is satisfied. The seasoning period is the amount of time you must wait before you can access the interest you gain on your account).
- Once you make a Roth Conversion, you will not be required to take a Required Minimum Distribution, even if you are over age 70½.
- Your principal can be withdrawn at any time, and your interest can be accessed once the five-year seasoning period is over
- Roth IRAs can be passed on to a family member without any penatlies if the owner dies.
Considerations of a Roth IRA
- A Roth IRA cannot be used to defer tax payments, however any costs incurred from being in a higher tax bracket will most likely be offset by in the event that taxes increase during the life of the account.
- Interest earned on a Roth IRA cannot be accessed until the five-year seasoning period is over.
- Eligibility to contribute to a Roth IRA is subject to income limits, meaning that if you make over a certain amount, you may not be eligible to contribute to a Roth.
- Contributions to Roth IRAs are limited to a certain dollar amount per year (set by Congress).
First Senior Financial Group’s IRA Strategies
First Senior Financial Group’s skilled educators can help you decide the best way to proceed with your IRA. Armed with close knowledge of ever-changing IRA laws, our educators can custom-tailor a strategy that will suit your needs.