Community Chat

[ScrapHappy]

Tell me about Roth IRA's.  The good and the bad.

[Kachina624]

@ScrapHappy   You'd probably get the most accurate information by simply googling the subject. 

[ScrapHappy]

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@Kachina624 wrote:

@ScrapHappy   You'd probably get the most accurate information by simply googling the subject. 

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I've tried (and still trying.  Just confusing me.  For the most part from what I've read, if I'm reading correctly, it seems that people who will have a higher income when retired have the most benefit?  I don't understand that.  I though a Roth IRA was all about helping with taxes.

[judianne]

You could talk to a bank , they have retirement savings specialist . 

[nyc1]

@ScrapHappy   On a ROTH IRA,  you pay the tax on the money the year it is deposited.  Same with a ROTH 401K.   Therefore,  when you take money out when the time comes,  you don't pay the tax because you've already paid it. 

With a non Roth,  you get a tax deduction for the amount you put in your IRA (as long as you don't have another retirement account),  the same for a traditional 401K,  the money you put in is deducted from your taxable salary.  HOWEVER,   when you withdraw the money,  you have to pay taxes.  Typically if you can start on a ROTH when you are younger,  you have all those years of higher income ahead,  so you are putting money in and paying taxes at a lower rate.

If you are older and at the top of your salary,   you may not want a ROTH.  If you don't plan on working when you have to start taking the miminum deduction,  you may be paying at a lower tax rate for having it in a traditional IRA or 401K since you no longer have an income from a job.  

The Roth options were not available when I started putting $ into my 401K.  At this point I just have the traditional account because I am at the highest level of my earnings. 

As others have said,  a bank or financial advisor may be more helpful,  but I hope I've clarified a little. 

Edited to add...  one more thing on the Roth,  because you have paid the taxes on the $,  you can borrow from it without a penalty if necessary.

[Snowpuppy]

You have to be working to contribute to either type of IRA.

The exception is a Spousal IRA which relies on your spouses esrnings to contribute. 

Roth is tax free in retirement so better for higher earners. Regular IRA is tax favored in your working years. Both have income limits.

[ladyann45]

The ROTH Ira is an accumlation Ira where you put money into it and leave it there for five years without doing a distribution for 5 years. when you do make a distribution out of it there is no additional tax or penalties on it. These contributions are mostly after tax contributions. They are mostly used for people who have a need to use money for education or buying their first home. The rules are different from a traditional IRA where you have to be at least 591/2 to avoid additional tax and penalties. Check with a Financial advisor at your local bank, credit union or even the IRS website for additional information. I hope this gave you some insight on what a ROTH is. I wish I had more time but this is tax season.

[kitty60]

When you deposit to a Roth IRA you get no tax deduction.  The money you deposit and invest accumulates until you choose to withdraw it.  You have to keep the money in at least five years, yes as someone said you can take it out earlier than retirement without penalty but you may owe on the amount earned in the account.  After the 5 years and you are at least 59 1/2 (I believe, you can double check the age) the money can be withdrawn tax free.  You are also not required to take a deistribution similar to required minimum contributions on Contributory IRA's and other retirement plans.  The benefit is, the money you put in you have already paid taxes on.  The longer you can keep it in there the investment income will acuumulate and when you take it out at the correct time it is tax free (and if your in a higher income level at that time it is a big benefit)  Since there is also no required distribution some people use as part of their estate planning to pass money on.

[ladyann45]

You are absolutely right and this is the most under used IRA. Most people never look at this at all. It was established in the nineties and most of us for awhile was wondering if Congress would change the rules on this one. Since the contribution are made after taxes. This is a perfect way for young people to contribute to an IRA because most of them don't know how to invest or the jobs they have don't offer it to them. I introduced this my granddaughter and she is investing a $100. a month toward her future as a college student with a part time job.