The Major Benefits of A Roth IRA

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					                      The Major Benefits of A Roth IRA

Below is a list of the potential Roth IRA benefits that could affect you, read each of them
carefully to see if they apply to you or your contribution limits.

Roth Benefits

Tax Free Withdrawals - You are allowed to withdraw any contributions (money that you
have put in) from your Roth IRA tax free whenever you'd like. However any money
earned in the account can only be withdrawn tax free if 5 years has passed or you are over
the age of 59.5 years old. Unlike normal IRAs which you will be taxed for withdrawals if
you are under 59.5 years old, as long as the 5 years has passed you will not pay taxes.

Conversion Rules - You are permitted to convert a traditional IRA to a Roth IRA in
many circumstances, although there may be some fees, the withdrawals will be tax free
after certain conditions are met. After the standard 5 year period, you can withdraw the
full amount of converted funds without any penalties.

Flexibility - You can have both a Roth and Traditional IRA and contribute to both at the
same time. You can also have a 401k as well if that makes sense for your situation.

Family Safety - If each spouse owns a separate Roth IRA, and one of them dies, the
surviving spouse can combine the accounts with no penalty. Similarly, if a single parent
dies, their account can be passed on to one of their descendants.

Certainty of Taxes - While it may seem like a negative sometimes that you must pay
taxes on deposits, it protects you from any higher effective tax rates in the future when
you wish to withdraw, so you can know with more certainty how much money you will
have available to you when you are older.

Passing on Wealth - Previously mentioned was that the IRA's assets could be inherited
from the owner upon death, but to expand on that point, there is no mandatory age at
which you must start withdrawing from your Roth IRA. This means that you could
simple allow your assets in the account to keep appreciating to pass onto your family if
you do not need it.

Principal Residence Benefits - $10,000 in earnings in the Roth IRA are completely tax
free when the money is used to buy a house (first time buying a house). This money can
be used when the owner of the Roth IRA is purchasing the house, or can be used if a
spouse or children are buying the residence as well. There are some minor restrictions to
this, but is something that should be looked into.

Contribution Limits - Here's a benefit that can be deceiving at first, while the total
maximum contribution limit is the same for your traditional and Roth IRA, the maximum
contribution for each individually is effectively different. For example, if your maximum
contribution is $5,000, and you want to put it all in a traditional IRA, you simply put in
the $5,000. However, if you want to put the same $5,000, that is in after tax dollars,
which means you are really contributing $5,000/(1- Tax Rate), where your tax rate is
between 0 and 1 converted from a percent. In essence you can contribute more to your
Roth IRA because you are paying the taxes on the deposit versus the withdrawal.

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