Many individuals are turning to Roth IRA accounts due to the tax benefits they may receive later in life. Traditional IRA accounts usually do not charge taxes on money that is deposited, but when an investor begins to withdraw their earnings, they must pay taxes on what they have gained. However, the opposite is true for Roth IRA accounts and, for this reason, many are willing to pay taxes on their investments presently and reap the benefits of money owed, tax-free, when they have neared the age of retirement.
While there are few people who would argue that planning for retirement is a bad idea, there are certain options which may be used for investors that may be more beneficial than others. Obviously, 401(k) plans are quite popular, but individual retirement accounts have also become an asset for men and women who are attempting to build a nest egg for retirement.
The uncertainty of the job market at the present time, coupled with the recent recession, may have many concerned about job security in the future. During the recession many men and women who had been working with their company for decades saw their job taken from them and, in some cases, their retirement account also suffered.
While traditional and Roth IRA accounts have been used over the past years to help many save for their retirement outside of plans like an employer 401(k), Roth IRA accounts have become more popular in some cases since they provide the option of withdrawing earnings tax-free.
Traditional IRA contributions can be tax-deductible, but withdrawals of earnings must begin by the age of 59 1/2 and mandatory withdrawals begin after age 70. Also, when investor begins to withdraw these earnings, they are taxed, which can be quite costly depending upon one’s earnings over the years.
It’s for this reason that some have turned to Roth IRA accounts since earnings will not be taxed if the rules of the Roth IRA account are followed. While, as opposed to a traditional IRA, contributions made to this account are not tax-deductible, there is no requirement that withdrawal must begin at a set time. This tax-free withdrawal of earnings and the fact that there is no mandatory distribution age have led many to either begin investing in a Roth IRA account or converting their traditional IRA to a Roth account.
It will be heavily dependent upon one’s income and financial situation as to which account may be more beneficial, or if converting from a traditional IRA to a Roth account will be more profitable, but young men and women who are looking at ways to invest for their future have found that these Roth IRA accounts are one way in which they might be able to secure some form of financial stability later in life.