Roth IRAs are not for everyone, but for some people, a Roth IRA is one of the best investment vehicles available.
David and Ashley were recently talking with a tax accountant who pointed out that the children in the portraits on his desk all had Roth IRAs. What is remarkable about a Roth IRA is that anyone with earned income can contribute to one, even children! We will explain more about what a Roth IRA is below.
So, why is a Roth IRA so great? Simply put, a ROTH IRA allows you to invest funds over your lifetime and then withdraw those invested funds in retirement without paying any tax on the earnings OR the withdrawal. So, imagine a 12-year-old earns $500 from babysitting over the summer. If he puts $100 of that money into a Roth IRA and the account was to grow at about an 8% annual return rate, his account could reach about $10,000 by the time he turns 72 years old. All of these retirement funds can be withdrawn tax-free!
If you’re interested in how this works, read on…
IRA stands for individual retirement account. IRAs are a group of retirement accounts with special tax advantages.
Traditional IRAs and Roth IRAs are quite similar, but they work differently with taxes. Both traditional and Roth IRAs are popular retirement investment vehicles because they both allow you to invest without paying capital gains taxes on any market growth within the account.
While most traditional IRAs have tax-deductible contributions, Roth IRAs do not. People usually open a traditional IRA account if they expect to be in the same or lower tax bracket in the future.
Also, while traditional IRAs are funded with either pre-tax or after-tax dollars, Roth IRAs are only funded with after-tax dollars. This means that when you go to withdraw from your Roth IRA in retirement, your withdrawals are tax-free!
If you or anyone you know is interested in opening a Roth IRA, give us a call! The account can be opened up over the phone, and you can get started right away.