Saturday, February 15, 2014

Roth IRA - Everything you need to know

Roth IRAs have an interesting history. There are many reasons people may want to open a Roth IRA. Maybe you want to save money with a Roth IRA, or maybe you are planning for retirement with a Roth IRA. Many also decide to start a Roth IRA to take advantage of the tax breaks a Roth IRA provides. Whatever your reasons for considering saving in a Roth IRA, you no doubt have plenty of questions about Roth IRAs. What is a Roth IRA account? Are there any Roth IRA limits such as an income limit or a contribution limit? What are the Roth IRA rules with regards to how much you can contribute to a Roth IRA in a year? Can I open multiple Roth IRAs at once, or can I at least own multiple Roth IRAs at the same time? Where can I find a Roth IRA calculator to calculate how much I will earn with a Roth IRA? Where can I open a Roth IRA? Can I convert my assets such as a 401K to a Roth IRA with a Roth IRA conversion? What are the Roth IRA withdrawal rules and limits? What are the pros and cons of a Roth IRA vs a traditional IRA? Which institution offers the best Roth IRA? These are just some of the many things to know when planning to open a Roth IRA. I would like to consider the answers to some of these questions.

-What is a Roth IRA account?
IRA stands for Individual Retirement Account. A Roth IRA is a variation of the traditional IRA which offers different options and comes with a different set of eligibility rules and limits vs a traditional IRA. One of the main differences between a Roth IRA and a traditional IRA is the issue of tax deductions. In a regular IRA, all contributions can be deducted from your taxes, whereas a Roth IRA is not tax deductible. Most would see this as a negative feature of the Roth IRA vs the regular IRA, but it is not completely negative. The money contributed to the traditional IRA has not been taxed at the time of contribution to the fund, and for this reason it must be taxed at the time of withdrawal. So with this in mind, if you contribute $3000 to a regular IRA then it isn’t really worth $3000. Once it gets taxed, it will be worth more like $2000 depending on the tax rate which will more than likely go up as the years go on. On the other hand, a Roth IRA is not deducted from your taxes. That means that all your Roth IRA contributions are already taxed when you contribute them, and they don’t have to be taxed when you withdraw them later. This also means the money will be taxed at the current tax rates, which are more than likely lower than those in the future, and to top it off the tax rate is fixed, so you don’t have to stress over it later. So $3000 contributed to a Roth IRA is equal to a full $3000. Talk to a financial adviser to discuss the pros and cons of a Roth IRA account in your situation. To see a more detailed list of differences between a Roth IRA account and a traditional IRA check out this list.

-What are the Roth IRA income limits?
Every year the Roth IRA income limits change. What is an income limit? This is the maximum amount of income a household can bring in and still maintain eligibility for full contribution to a Roth IRA account. To find out what these Roth IRA income limits are, you should consult  a professional financial adviser who is knowledgeable of current limits for Roth IRAs.

-What are the Roth IRA contribution limits?
Roth IRA accounts are designed to help encourage citizens to plan for their own retirement rather than relying solely on the social security program. For this reason there are many tax breaks and benefits offered by the Roth IRA. But to make sure the very wealthy cannot take advantage of this provision, there are certain contribution limits enforced. Roth IRA contribution limits are variable from year to year just as the Roth IRA income limits. So the best way to find out the current Roth IRA contribution limits is to consult a professional Roth IRA specialist. This financial planner can help you determine how much you should contribute to your Roth IRA. Be sure to ask about the Roth IRA contribution limits for your age group as those over 50 years old are allowed to contribute more to their Roth IRA since they are closer to retirement age.

-How much can you earn with a Roth IRA?
How much can I earn with a Roth IRA account is directly related to how much I contribute to my Roth IRA. If you contribute more to the account, then your Roth IRA will earn more. This is because Roth IRAs earn money with compound interest rates. So along with contributing a lot to your Roth IRA account, you should try to find the best Roth IRA interest rates. The higher you get the rate of return on a Roth IRA, the more your contributions are compounded and the more money you earn for retirement in that beach house you always dream about. One of the keys though to earn a lot with a Roth IRA account is to start saving soon, and the younger you are the better off you are. Think about this: you retire at about 65 years old. So a 25 year old has 40 years for your Roth IRA contributions to stack up. A 40 year old has already cut that time in half. So start saving now!!! If you want to know how much you can earn with a Roth IRA you should use a Roth IRA calculator. You can find a Roth IRA calculator online or ask a local financial adviser to help you calculate you possible earnings.

-Can I open multiple Roth IRAs?
Depending on the current Roth IRA rules, you may be able to open multiple Roth IRAs or own multiple Roth IRAs simultaneously. But it is important to note that the Roth IRA contribution limit is a collective total. That is the current Roth IRA contribution limit is not actually based on the number of accounts, but rather on you. So rather than saying there is a maximum contribution to a Roth IRA account, I should really say that each person has a maximum Roth IRA contribution.

-Where can I open a Roth IRA account?
Where can I open a Roth IRA is a simple question to answer. There are millions of banks and other financial institutions that offer Roth IRA options to their clients all over the USA. You don’t have to live in New York, or Los Angeles to open a Roth IRA account. Pretty much anywhere you can get a job, you can also start a Roth IRA to plan for retirement.

-How can I convert assets to a Roth IRA account?
The best thing to do if your want to convert funds to a Roth IRA is to do a Roth IRA conversion. You are usually allowed to convert assets such as a 401k, simple IRA, traditional IRA, SEP IRA, self directed IRA and many more to a Roth IRA account. There are however certain rules and limits that go with a Roth IRA conversion. So certain accounts can not be converted to a Roth IRA. This is not always a smart move. So then the question comes up, “Shohuld I convert my assets to a Roth IRA account?”. If you are wondering this, it would be a great question for your financial adviser. A Roth IRA specialist can explain all the benefits of doing a Roth IRA conversion, and can detail any cons that can result from converting funds to a new or existing Roth IRA account.

-What are the Roth IRA rules for withdrawing funds?
As with all IRA accounts, there are rules and limits on how much you can withdraw from your Roth IRA account. When can I withdraw money from my Roth IRA? The Roth IRA is not as strict as the regular IRA in terms of when you are allowed to withdraw funds. in the regular IRA, there are very few allowances for early withdrawal from the IRA account. But the Roth IRA is more lax about early fund withdrawal. Many people in fact use it as an emergency fund because early withdrawal is so much easier than in a traditional IRA. How much can I withdraw from my Roth IRA? Again since the Roth IRA rules of early withdrawal are more lax than the rules of the traditional IRA, you are able to withdraw more from the Roth IRA even before the retirement age. Since the rules of Roth IRAs are constantly changing from year to year, you would be smart to talk to a local bank that offers Roth IRA funds in your area to make sure you are getting the current Roth IRA rules.

- Which bank offers the best Roth IRA?
Since there are so many Roth IRA options on the market, it is not easy to say which bank has the best Roth IRA. Everyone’s circumstances are different, and therefore need different accommodations. one of the most important things to look from from banks’ Roth IRA accounts is the Roth IRA rates of return otherwise known as the Roth IRA interest rates. As previously mentiond, getting a high yield Roth IRA account will give you a bigger return. And a high interest rate Roth IRA account will earn you more money. Always be sure to consult with several different banks before choosing the right Roth IRA for you. This will let you compare Roth IRAs at different banks and see which one really is the best Roth IRA for you. One great way to compare Roth IRA accounts is to ask each of the banks offering Roth IRAs to show you a projection of earnings until your retirement age. If you can see this on paper, then you will be able to compare a total dollar amount from bank to bank and not have to worry about so many details of Roth IRA return rates, and bank policies for Roth IRAs.

I hope this information helps you find the best Roth IRA for you, and always remember that the younger you are when you start a Roth IRA, the more money you will have saved come time to retire at the beach house you dream about. Using our Roth IRA calculator will prove just that!

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