Roth retirement account rules can be confusing, which may be why I get many questions about them from Money Girl readers and podcast listeners. While there's a sea of regulations to navigate, it's worth learning them so you can reap the benefits, such as paying lower taxes having withdrawal flexibility.
Today, I'll answer four questions and review five critical rules for using a Roth account at work or on your own successfully.
Before we get into the details on crucial Roth rules you should know, let's answer a voicemail I received from Chris, who didn't want to be on the air. She says:
I just recently started listening to your podcast, and I really enjoy it. What are the benefits of an IRA versus saving your money in a savings account or CD?
Thanks, Chris! That's a terrific question about an important topic.
What are the benefits of using a retirement account?
There are several reasons why using a retirement account for long-term savings is critical. First, retirement plans, such as a traditional IRA, traditional 401(k), and SEP-IR, allow owners to make tax-deductible contributions if they meet specific requirements. That cuts your taxes in the current year, saving you money.
For example, if you earn $60,000 and contribute $5,000 to a traditional IRA or workplace 401(k), you pay income tax on just $55,0000, not $60,000. When you retire and take distributions, Uncle Sam catches up with you by imposing income tax on amounts you withdraw.
Roth retirement accounts, such as a Roth IRA, Roth 401(k), or Roth solo 401(k), have the opposite taxation as traditional accounts. Contributions to any Roth get taxed the year you make them. However, your future withdrawals of contributions and earnings are entirely tax-free if you meet specific rules, which we'll cover.
If you invest for decades and your Roth account mushrooms in value, it's nice to know that you'll never have to pay income tax on your earnings. And if income tax rates increase down the road, that could make having a Roth especially sweet.
If you invest for decades and your Roth account mushrooms in value, it's nice to know that you'll never have to pay income tax on your earnings. And if income tax rates increase down the road, that could make having a Roth especially sweet.
Additionally, retirement accounts allow you to select investments for your contributions, such as mutual funds and exchange-traded funds. They bundle hundreds or thousands of...
Keep reading on Quick and Dirty Tips
Tidak ada komentar:
Posting Komentar