Higher income ceilings for full annual contributions - The tax code allows you to put up to $5,500 in an IRA this year-$6,500 if you are over 50. There are income limits over which the contributions are limited or phased out. Call for the details on those limits.
More flexible access to your money - Roth IRAs allow you to withdraw your personal contributions whenever you want, without paying taxes or penalties. So your Roth can function as both a retirement account and a ready savings account. Traditional IRAs don't allow withdrawals without taxes and/or penalties.
Tax-free retirement income - There is no tax deduction for the money you put into a Roth IRA. Instead, the money you earn on your investments comes to you tax-free when you retire. To get this tax break, you generally have to hold the Roth IRA for at least five years and be older than 59-1/2. If you're in a high tax bracket and expect to drop to a lower one when you retire, you might prefer the traditional IRA. In a traditional plan, your contribution is deductible on your current tax return. On the other hand, you might be in a high bracket when you retire, especially after age 70-1/2-the age when people who hold traditional IRAs begin mandatory withdrawals. In that case, the Roth IRA might be preferable.
Tax-free wealth for your heirs - Roth accounts can be a good idea for people who expect to leave at least some of their IRA savings to their heirs. People who inherit traditional IRAs owe income taxes on the money. With a Roth IRA, the funds are transferred to your heirs income tax-free and could conceivably grow, tax-free, for two or three generations.
Opportunity to increase your wealth at older ages - You don't have to make withdrawals from a Roth IRA at 70-1/2 as you do with a traditional IRA. If you work past 70-1/2, you can continue contributing to a Roth IRA, but not to a traditional IRA.
Potential savings on future Social Security taxes and Medicare premiums -You owe income taxes on part of your Social Security benefits if you are single with an adjusted income of at least $25,000, or married with at least $32,000. Your income includes withdrawals from a traditional IRA, which at age 70-1/2 might be large. Money withdrawn from a Roth IRA, however, is exempt from the income tax calculation, which holds your future taxes down. Roth IRA withdrawals also are exempt from the calculation that charges wealthy people higher premiums for Medicare.
Two closing points:
1) Don't confuse contributing to your IRA with converting to a Roth. That's another topic, but if you are not working, and think you might like the Roth, you may still be able to convert to a Roth IRA. Call if you need details on converting.
2) You can fund a Roth IRA for 2015 all the way to the first tax filing deadline. Even if you have already filed your income taxes, you can still fund a Roth IRA (remember, this is not true for a traditional IRA, which has to be funded before your return is filed).
Please don't hesitate to give us a call if you need help with evaluating a Roth IRA or any component of your financial planning. We can usually show you the merits of the Roth IRA in under 30 minutes. If you think income taxes might be going up in the future, give us a call and we can help you analyze whether or not a Roth would be a good vehicle for you to lock in some INCOME TAX FREE growth!
