Roth IRA is one of the popular methods by which an individual can save money for the golden years of his life. It is a special individual retirement account that has both positive as well as negative aspects and in comparison to the standard individual retirement account, this one definitely stands out because of its unique benefits. It is a new investment account meant for retirement and is specially designed to help individuals develop the habit of savings.
The Roth IRA is an account that allows investment earnings to grow tax-free so long as the distribution rules are observed. This means that as long as an individual follows the rules, the earnings on the contributions that they make will never be subject to tax. However, like all investment options this retirement benefit plan has it plus as well as minus points some of which are discussed as follows:
Positive aspects of Roth IRA
- If you happen to have a traditional IRA account then you can convert it into a Roth IRA account with certain restrictions. This is a spectacular advantage for the people who are eligible because they can make payment for taxes on the funds of the traditional IRA at present and allow these payments to grow (tax deferred basis) and when they reach the age of 59+ they can eventually withdraw those dollars tax-free.
- The funds that are invested into the IRA account can be withdrawn without paying any tax on them after they are taken out at the age of 59+.
- Individuals have the chance of diversifying their portfolio when it comes to tax treatments if they are eligible for the Roth IRA plan.
- The account holder gets to enjoy the tax-free benefits when they are availing their retirement funds.
- There aren’t any age requirements for the purpose of distribution with the IRA, unlike the traditional IRAs. Hence, the investors can save a lot of money as well as taxes because they can be pushed into a higher tax bracket after the age of 70 due to forced distributions.
- A Roth IRA allows investors to build their portfolio such as securities, mutual funds, options, etc within itself.
Negative aspects of IRA
- In comparison to the traditional IRA, the contribution to Roth IRA is not subject to tax deductions. In case of traditional IRA, the individuals have the ability to deduct contributions and the present tax benefits need not be weighed against the possible and perceived tax-free future benefits.
- There are certain ‘phase-out’ restrictions when it comes to the ability to contribute to this type of account. Hence because of this, certain individuals are unable to leverage this particular investment choice.
- One cannot contribute as much as one wants to Roth IRA. There is an annual limit and this amount is adjusted on a yearly basis and hence the individuals need to exercise caution and understand it entirely before making any investment decisions. So that is why eligible investors are advised to maximize their contribution limit for maximum benefits.