Preparing for Retirement with a Roth IRA

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Getting ready for retirement is critical to ensuring the well-being of your loved ones and you during your later years. One way to prepare is to invest in an individual retirement account. You may have heard of a Roth IRA, which offers a few unique benefits and may be right for you.

What is a Roth IRA?

A Roth IRA is a retirement account that allows you to withdraw your contributions and earnings without paying taxes on them. You enjoy this perk because you pay taxes as you invest your money. A Roth IRA is particularly valuable if you are young and plan to earn more over time. However, this account can help you at any age because you'll pay less taxes in your retirement years. In addition, if you plan to leave your loved ones some or all of this money, you can take comfort knowing they won't have to pay taxes on their inheritance.

Other Withdrawal Benefits

Owning a Roth IRA gives you the flexibility to withdraw money at any time should you need to do so. How much you can take out depends on how much time has passed since you made your first contribution and how old you are.

  • At any time, you can withdraw your contributions without paying taxes or a penalty fee for withdrawing.

  • After five years, and if you are at least age 59 1/2, you can withdraw your contributions and earnings without paying taxes or a penalty fee for withdrawing.

  • After five years, and if you are buying a house for the first time, you can withdraw a maximum amount of $10,000 to pay for related costs without paying a penalty fee for withdrawing.

One more important advantage is that you will never be required to withdraw money from your Roth IRA, which means your money can keep growing throughout your lifetime.

Do you qualify?

Earning too much money restricts your eligibility for a Roth IRA, but most people qualify for the full benefits. The maximum amount you can contribute by the end of 2015 is $5,500 if you are under age 50. If you are 50 or older, the amount is $6,500.

  • If you are single, you can make full contributions if your modified adjusted gross income (MAGI) is less than $114,000. You can make partial contributions if your MAGI is less than $129,000. Your MAGI is determined by taking your adjusted gross income and adding items such as deductions made on a student loan or a traditional IRA.

  • If you are married and filing jointly, you can make full contributions if your MAGI is less than $181,000. You can make partial contributions if your MAGI is less than $191,000.
    If your MAGI exceeds these limits, you can convert some money from a traditional to a Roth IRA. You pay taxes on what you convert.

Opening a Roth IRA may be something to consider if you like the benefits of long-term growth on your money and less or no penalties on your withdrawals.

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