<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=905697862838810&amp;ev=PageView&amp;noscript=1">

Subscribe

    Retirement Planning | 3 min read

    Three Advantages of a Contributing to a Roth IRA

    Whether you're new to the workforce and just getting started on your retirement planning course, or you've been at it for a while, either contributing to your company-sponsored 401(k) plan, and/or making regular contributions to a traditional individual retirement account (IRA) through a private brokerage firm, I'd like to talk a bit today about the advantages of contributing to a Roth IRA.      

    A Roth IRA is essentially the same as a traditional IRA, except that instead of making pre-tax contributions, your contributions are made after taxes—you won't get an annual tax deduction like you do with a traditional IRA or 401(k) plan—giving you tax-free income once you retire and start making withdrawals. Not only does the government not touch your contributions, but your interest earnings can be withdrawn tax-fee as well. Like the traditional IRA, there are contribution and income limits: 

    2015 Roth IRA Income and Contribution Limits*
    Filing Status MAGI Contribution Limit
    Married filing jointly $183,000 or less $5,500**
    $183,001 to $193,000 Begin to phase out
    Greater than $193,000 Ineligible for a Roth IRA
    Married filing separately $0 $5,500**
    $1 to $9,999 Begin to phase out
    Greater than $10,000 Ineligible for a Roth IRA
    Single   $116,000 or less $5,500**
    $116,001 to $131,000 Begin to phase out
    Greater than $131,000 Ineligible for a Roth IRA

     *Source: RothIRA.com

    So, with all of the available retirement options, why should you consider a Roth IRA? There are many reasons, but I've whittled it down to my top three:

    1. Gain Flexibility

    Unlike a traditional IRA, a Roth allows you to make penalty-free contribution withdrawals at any time, even before you reach retirement age. However, if you withdraw interest earnings or growth, there are penalties associated with this type of withdrawal. Now, I certainly don't recommend that you use your Roth IRA as an emergency fund, however, it is an available option, giving you some added flexibility that is not available with a traditional IRA or 401(k) account.  

    You may also be interested in: Is Your Retirement Savings on Track? [Infographic]

    2. Tax Benefits

    As I mentioned earlier, you do indeed forgo tax deductions now when making Roth IRA contributions, however, this sacrifice now gives you a steady, tax-free income stream in your future. Depending on your age and when you plan to retire, this could be very beneficial—after all, who knows what the tax rate will be in 20 years? In addition, Roth IRAs can serve as effective estate planning tools. Unlike the traditional IRA, where you are required to make deductions at age 70 1/2, you are not required to make deductions from a Roth IRA at any time. So, in essence, you could leave any contributions and earnings in your Roth IRA, untouched, for as long as you wanted. Should you never have to make a withdraw, the money would continue to grow and earn interest and be available as tax-free income for your heirs.      

    3. You can contribute longer

    With a traditional IRA, at age 70 1/2, you are not allowed to make any additional contributions. However, a Roth IRA allows you to continue making contributions for as long as you'd like. If you continue to work well into your 70s and want to continue to save for your future or the future of your heirs, knock yourself out! 

    There are several retirement planning options. The key is to find what will meet your current and future needs, and don't "set it and forget it." Take the time to meet with your financial advisor regularly to make sure you are on track and to reevaluate any changes in your income, expenses, and beneficiaries. 

    How much will your retirement cost you? Click here to access our retirement planning calculator.

    .learn-how-to-double-your-life-savings

    Related Categories

    Retirement Planning

    Dan Schlicher

    Dan Schlicher, Wealth Advisor Dan Schlicher joined SWBC Investment Services, LLC in 2014 as a Wealth Advisor. Dan has been in the financial services industry for thirteen years. He has worked at Edward Jones, Linsco Private Ledger, and USAA as a financial advisor, and most recently worked at US Global Investors as an Investor Representative. Dan is a graduate of Texas Lutheran University in Seguin, Texas with a Bachelor of Arts degree in History with concentrations in Economics and Communications. He holds the Chartered Retirement Planning Counselor (CRPC®) designation from the College for Financial Planning, the Series 7, 63 and 66 licenses as well as licensing in Life and Health insurance.

    You may also like:

    Financial Planning Retirement Planning

    Take Advantage of Greater Retirement Account Contributions in 2019

    If saving more for retirement is one of your new year's resolutions (and it probably should be, for all of us), you're i...

    Retirement Planning

    Plan Now to Fund Healthcare in Retirement

    Saving sufficient funds for a comfortable retirement is a challenge for most of us. Sadly, there's another large expense...

    Retirement Planning

    6 Ways a Wealth Advisor Delivers Value to Your Portfolio

    No matter which sports you follow, your favorite winning team no doubt owes much of its success to its coach's leadershi...

    Let Us Know What You Thought about this Post.

    Put your Comment Below.

    icon

    User-friendly investing for goal-oriented people.

    Start Investing