ROTH IRA (INDIVIDUAL RETIREMENT ACCOUNT)
Today we are going to talk about Roth IRAs.
If you remember from last week, an IRA stands for Individual Retirement Account, and you can open an IRA at a bank or financial institution.
When you make contributions to a Roth IRA, you are contributing with after tax money, and you will not be lowering your taxable income. What that means is that contributions to a roth ira will not help to lower your current tax bill. So, if you are someone who does not typically owe taxes, you may be a good candidate for opening a roth.
Contributions will however, GROW tax deferred, meaning that they will not be taxed along the way, and withdrawals made in retirement come out federally tax free as long as certain guidelines are met.
The maximum contribution into a roth ira for 2020 is $6,000 if you are under 50, and $7,000 if you are 50 years or older. You can open a Roth with as little as $50 a month.
Contributions can be made for the previous year until April 15th of the following year. This means that you have until April 15th of 2020 to contribute for 2019.
In order to contribute to a roth ira, you must have earned income, or a spouse with earned income who can contribute on your behalf.
Your income affects how much you can contribute, so you will have to make sure you fall within those limits, however, unlike the traditional IRA, you may continue to contribute to a roth at any age, and mandatory withdrawals are not required.
Remember that a roth IRA is simply an account title. It’s the investments you choose for your account that will determine whether the account increases or decreases in value. Common types of investments for IRA’s include, stocks, bonds, mutual funds, and money market instruments
Like the traditional IRA, non-qualified withdrawals prior to age 59 ½ may be taxable and penalized. So you will want to remember that contributions into any retirement account should be for just that…RETIREMENT!
To find out if a roth ira makes sense for you, or if you have a roth ira that you would like me to go over with you, please don’t hesitate to reach out! It’s important to understand the fees you are paying, and to make sure your investments are suitable for your time horizon to retirement, and how much risk you are willing to take. I’m happy to explain these details to you!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
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