Retirement Investment Accounts–Are Investors Using Roth IRAs To Avoid Required Minimum Distributions?

Many investment accounts which are set in place specifically to help individuals save for retirement can offer different benefits when it comes to planning for one’s future. However, Roth IRAs have become a popular choice for many investors when it comes to planning for their retirement and, as a result, there have been some individuals who have converted 401(k)s and traditional IRAs into a Roth IRA account.

One of the main reasons many investors turned to Roth IRAs is because of tax advantages which may be used and factors like required minimum distributions on traditional IRAs. Individual Retirement Accounts have been a way many have begun saving for their later years at almost any point in an individual’s career, and traditional IRAs have been used due to the fact that contributions can be written off on one’s income taxes.

Obviously, someone who makes a great deal of contributions to a traditional IRA could benefit from these income write-offs, but there are required minimum distributions when an investor reaches a certain age, typically 70 1/2 years old, and earnings in a traditional IRA are usually taxed as ordinary income. While there are some investors who have benefited from traditional IRAs and 401(k) plans, many are turning to Roth accounts simply because of the advantages they bring concerning taxes.

A Roth IRA will allow the investor to withdraw earnings tax-free later in life, which can be quite lucrative for some, and there are no required minimum distributions with this type of retirement account, which again has been helpful for investors. Obviously, being able to withdraw earnings from a Roth IRA tax-free is beneficial, but again, contributions to a Roth account will still be taxed as part of the investor’s income.

However, when it comes to choosing a retirement account, the various options which are available may be more beneficial for an individual’s situation and, for some, a Roth IRA may not always be the best choice. There have been investors looking into converting to a Roth IRA as of late, thanks to conversion opportunities which have recently been made available, but individuals who may be nearing retirement or who could suffer a great deal when paying taxes on this conversion may be some of those individuals who would not benefit from choosing a Roth IRA at the present time.