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Turning Your Roth IRA Into Universal Savings
A Roth IRA is a proven savings vehicle that is popular with Americans while being good for the economy.
IRA’S encourage people to prepare for retirement. IRA’S have no income limits, which makes them available to anybody. This gives everyone the opportunity to save for the future.
It is hard to think about saving money if you are living paycheck to paycheck and just barely getting by. The best time for a lot of us to put money aside is when we get our income tax refunds. This is a great time to open a Roth IRA account. Annual contributions to a Roth IRA are currently $5,000 or $6,000 if you are over the age of 50. Any bonus money you get from work, would be a good addition to your Roth IRA.
Income used for contributions has already been taxed, so no tax is imposed on qualified distributions from Roth IRA’S. Roth IRA’S remove the income tax bias that prevents many people from setting aside enough money for the future.
Having a good savings plan is important for everyone. Opening a Roth IRA account is a great way to begin saving for retirement. None of us want to retire without enough money to live a good life. It is important to begin savings as soon as you can.
Retirement is supposed to be fun and relaxing so make sure you have enough money to live your “work free” days in high style! Turn your Roth IRA into your savings plan.
Can I Have More Than One Roth IRA?
Many people want to know if they can have more than one Roth IRA account. The answer is yes. You can open multiple IRA accounts.
You can own both a Traditional IRA and a Roth IRA. You can contribute to both in the same tax year. You must remember you can not contribute more than the maximum contribution limit in all IRA accounts in any given tax year.
You can also open multiple Roth IRA accounts, and they can be held with different companies. Again, you can not contribute more than the limits to all your accounts in any given year. You can have one IRA account with multiple investments within the account.
A 401K plan is an employer sponsored retirement plan. When you leave your job, you will need to decide whether to leave your assets or roll over your assets into an IRA.
There are several other types of retirement accounts out there, including SEP-IRA’S, Simple IRA’S, solo 401K plans, annuities and more. You can have multiple accounts for these as well. With these types of accounts there may be eligibility requirements, and contribution and income requirements, so you should do some research before opening any new account.
There are advantages to owning more than one type of Roth IRA account. You will have more money when it is time for you to retire. Having a secure future is something we can all benefit from. There is no wrong time to start saving money, a Roth IRA account is a great way to start.
Estate Planning With Your Roth IRA
Often times the focus of a Roth IRA is on the income tax benefits. There are also estate planning benefits with having a Roth IRA.
A Roth IRA lets you leave money to your heirs, without leaving them an income tax bill. When you take money out of a Roth IRA, your heirs will not have to worry about paying income tax on those withdrawals.
You are able to leave more money to your heirs. A Roth IRA lets your money keep growing until your death. You do not have to take distributions after you turn 70 ½, your money just continues to grow.
A Roth IRA allows you to continue to add money until the day you die. With a regular IRA, you can not make contributions after the age of 70 ½. All of the contributions made after age 70 ½ are tax free, not only for as long as you live, but also until your heirs take the money out.
A Roth IRA IS part of your estate. If your estate is big enough, you family could lose as much as 45% of the money in the Roth IRA to federal death taxes. They will not have to worry about paying taxes as well as estate taxes. All states have their own rules and may impose death taxes on a Roth IRA.
Congress makes the rules on who can put money into a Roth IRA and when you can take money out. The rules change often, so make sure you talk with your tax advisor about any estate planning done with your Roth IRA.
How To Convert A Roth IRA
Not sure if you should convert your regular IRA into a Roth IRA? Here are some advantages if you rollover to a Roth IRA.
A Roth IRA will be larger than your regular IRA even if they contain the same dollar amount. The reason for this is, the Roth IRA contains after tax dollars. With a regular IRA, the government will eventually get some of your money in the form of income taxes. With a Roth IRA, you get to keep everything. The bigger your Roth IRA, the bigger the tax benefits.
You can keep your money in a Roth IRA longer. There is no requirement for minimum distributions to begin at age 70 ½. By keeping your money in a Roth IRA for a longer period of time, means you are extending the period of tax free compounding.
An added benefit of rolling over to a Roth IRA, is if you made non-deductible contributions to your regular IRA. When you roll over your regular IRA to a Roth IRA, the portion you roll over is tax free. You are moving the money from a place where your money will be taxed to a place where your earnings will be completely tax free.
Before you roll over to a Roth IRA, take some time to think about how and when you will use your Roth IRA money. You want to make sure you leave your money in the Roth IRA long enough to avoid paying taxes or penalties when you are ready to take your distributions.