The Roth IRA (Individual Retirement Account) is packed with benefits that can make saving for retirement a little more exciting. If you don’t want to leave any benefits on the table, take a moment to review these seven benefits below. They will confirm why the Roth IRA is one of the biggest retirement accounts since sliced bread.
1. You can earn tax-free income in retirement
If you want to enjoy a tax-free lifestyle during your retirement, a Roth IRA is an account to consider. Because you contribute after-tax dollars to the account, you can withdraw your earnings tax-free after you meet the five-year rule and reach age 59.5.
Be sure to contribute as much as possible each year you qualify, so you can accumulate more tax-free income later. If you accumulate a million dollar Roth IRA, you won’t have to worry about sharing your earnings with the IRS if you follow the rules.
2. Your contributions will not be locked forever
It’s a little easier to make Roth IRA contributions when you know that all your money isn’t locked in forever. It’s a benefit that sets the Roth IRA apart from most other retirement vehicles.
Let’s say you contribute $6,000 to a Roth IRA this year. Over the next two years, your investments will grow to $9,000. You can always withdraw the $6,000 whenever you want, no questions asked. It’s the $3,000 growth in your account that you don’t want to touch until you qualify for it. Earning income from your account may result in taxes and penalties.
3. You can invest in individual stocks
If you’re looking for a way to invest in your favorite stocks, a Roth IRA can be a smart place to house your investments. Unlike an employer-sponsored plan, you have more flexibility in the type of investments you can choose.
Here are some types of actions you might have access to:
The type of stocks you select for your Roth IRA can boost your portfolio and rack up the profits you seek.
4. You can contribute at any age if you have earned income
Age is not a prerequisite for contributing to a Roth IRA account. As long as you have earned income for the year and your income does not exceed the limits, you can make a direct contribution to a Roth.
This is an ideal opportunity for earning kids to get a head start on their retirement savings fund. An adult can open and manage the account until the child is old enough to control it. By starting now and making consistent contributions, a child can become a millionaire before retirement.
5. There are no required minimum distributions
If you have a traditional IRA, you must start withdrawing funds at a certain age. This is due to the minimum distribution rules required. These rules do not apply to Roth IRAs. You can contribute to your account for as long as you qualify and keep the money in your account for as long as you want. This makes it easier to accumulate more tax-free income in your account.
6. You can sell stocks in your account without worrying about taxes
If you decide to sell assets in your Roth IRA, you won’t be stuck with a tax bill, as long as the money remains in your account. Generally, you would be subject to capital gains tax whenever you sell shares for profit. But the Roth IRA lets you buy and sell assets at any time without worrying about taxes.
Let’s say you want to sell a stock in your portfolio that has gone from $1,000 to $3,000 per share. You can sell the shares and buy other assets in your Roth IRA with this money. You will not have to report your transaction to the IRS.
7. You can transfer money to your heirs in a tax-efficient way
As long as you’ve had your account for five years, your heirs may be able to withdraw money from your Roth IRA tax-free for a certain period of time. That’s because you’ve already paid taxes on your contributions in the years you funded the Roth IRA.
This makes the Roth IRA an excellent generational wealth strategy. If you don’t need to use the money from your Roth IRA while you’re alive, you can allow your heirs to enjoy the fruits of your investments.