How Can A Roth IRA Help With Your Retirement Goals?
A Roth IRA is a retirement account that you've already paid taxes on, so distributions from the Roth IRA will be tax-free once you become 59½ or older and you’ve met the 5-year holding period. always be tax-free!
A Roth IRA can be established with individual contributions or "conversion” of their existing Traditional or Rollover IRA. While you don't get a tax break the year you contribute, once invested, your money grows tax-free. After age 59½, you can withdraw your funds without taxes or penalties if the account has been open for at least five years.
The Benefits of A Roth IRA
Tax-Deferred Growth
The most powerful investment strategy is taking advantage of tax-deferred compounded growth, and an IRA is an excellent tool to help plan for financial goals.
No Income Taxes on Withdrawals
Tax-free withdrawals are available provided you’re 59½ or older and you’ve met the 5-year holding period.
No Mandatory Withdrawals (no RMDs)
There is no need to take Required Minimum Distributions (RMDs) with a Roth IRA.
Frequently Asked Questions About Roth IRAs
Do inherited Roth IRAs have Required Minimum Distributions (RMDs)?
Yes, inherited IRAs generally have required minimum distributions (RMDs), but the specific rules depend on factors like the original account owner's death date, the beneficiary's relationship to the owner, and whether the owner was already taking RMDs. Most non-spouse beneficiaries of traditional IRAs inherited after 2019 are subject to the 10-year rule, which requires the account to be fully distributed by the end of the 10th year after the owner's death, with annual RMDs often required during the first nine years. Surviving spouses, minor children, and disabled individuals are generally exempt from the 10-year rule and can be treated as "Eligible Designated Beneficiaries (EDBs).
Are the distributions from my Roth IRA tax-free from Federal and State taxes?
Yes, Roth IRA withdrawals are tax-free and penalty-free, but only if the distribution is "qualified". A withdrawal is qualified if you are age 59½ or older, and you have had your Roth IRA for at least five years. Otherwise, some or all of the distribution (especially earnings) may be subject to income tax and/or the 10% penalty tax for early withdrawals.
Should my investment allocation be different with a Roth IRA?
No, in most cases. The fact that withdrawals will be tax-free may reduce your tax liability, but it should have no or little influence on the investment allocation of the Roth, Traditional, and Rollover IRAs.
How do I know if my Roth IRA decision was a good one?
That is the million-dollar question. The main benefit of the Roth is to save a higher amount of taxes on future withdrawals than you will pay today when you convert or contribute to a Roth. So whether the Roth was a good choice will not be determined until all the original principal is withdrawn, and even then, it would be a complicated calculation.