T&C Answers: How Does a Roth IRA Work When You Retire?
For many of us, our retirement dream is to lounge on a white sandy beach or take a trip to see the world. But that fantasy can only be made possible with proper retirement planning.
One strategy you can use to fund your future retirement lifestyle is to open an Individual Retirement Account (IRA). However, before diving straight in, it’s essential to understand how an IRA works. First, let’s talk about the two major types: Traditional IRA vs. Roth IRA.
Traditional IRA vs. Roth IRA
Both traditional IRA and Roth IRA are sound investment decisions for the future. With traditional IRAs, you get a tax break now, but all your contributions are taxed as income after retirement. Roth IRA, on the other hand, doesn’t give you immediate benefits. Instead, you get to enjoy tax-free withdrawals after retirement.
How does a Roth IRA work?
Most banks and financial institutions are great for opening Roth IRAs. However, to be eligible to save for retirement, you need to be aware of some income cutoffs. You can make Roth IRA contributions if you earn less than $140,000 annually. As a married couple, you’re eligible when you earn less than $208,000 annually. If you qualify, you can grow funds in a Roth IRA tax-free.
Benefits of Roth IRA
There’s no limit to when you can withdraw your contributions. You can do this without any penalties since you have already paid your taxes. With traditional IRAs, you would have to withdraw your contributions by the age of 72. However, this requirement doesn’t exist with Roth IRAs. You could leave your money in there forever and pass it down to your heirs. Your investment in Roth IRA grows tax-free.
No doubt, a Roth IRA is a beneficial tool in your quest for a stress-free retirement. However, it’s best to ensure that you follow the proper application process to see if you’re eligible to own one, to avoid unpleasant surprises.
Create Your Retirement Plan with Tobin & Collins
Ready to start planning for retirement? Tobin & Collins is here to ensure your retirement future is financially stable. We’re available to answer any questions you may have about the process of securing a Roth IRA for retirement. Schedule a consultation with us at (201) 487-7744 or by filling out a contact form.