A Roth is an individual retirement account that could be an attractive addition to your portfolio, because one key benefit is that its distributions may be tax-free, if certain conditions are met. This could be a plus in your retirement years.
Unlike the traditional IRA, there are no age restrictions for making Roth contributions, as long as you have earned income. Which makes this a great investment vehicle to consider for investors just starting to work. Roth IRAs are funded with after-tax money, but grow tax-free until the funds are distributed. Distributions are tax-free as long as you have owned the account for at least five years and are over age 59½. Other qualifying events include death, becoming disabled, or being a qualified first-time home buyer using the distribution for the purchase of a primary residence.
Is a Roth IRA or a Traditional IRA the right choice for me?
Each individual investor will have different circumstances and so to determine if a Roth is right for you depends. "A Roth account is a good choice if you are young and in a low tax bracket." says Debbie Craig
Some common questions I receive from clients are are answered in this diagram below:
Your particular circumstances regarding:
Eligibility – your employment status may determine which IRA type is a better fit
Catch Ups – depending upon your age you may be eligible to increase your annual contribution
Penalties – certain distributions are not subject to an early penalty withdrawal
Deductibility – you may be able to deduct your contribution for tax purposes
Taxation – your current tax rate may determine which IRA type is the best fit
If you are unable to contribute to a Roth due to income restrictions or you believe your tax rate is lower now than it will be in retirement, you may want to consider a
Roth conversion. Contact me to discuss if a conversion is right for you.