Surprisingly, basic information can be the difference between a happy retirement and a stressful one.
The difference between a Roth and a Traditional IRA is that rather than being tax-deferred, as is the case with a traditional IRA, withdrawals from a Roth account are tax-free in retirement.
This opens up a variety of strategies for investors.
No Penalty For Early Withdrawals On Emergencies
Because you already paid taxes on the funds put into a Roth IRA, there is no penalty for making early withdrawals on your contributions to the account for emergencies. This flexibility may make sense for some people’s retirement plans. Be careful, though, because penalties may apply on withdrawals from the earnings the account has made. I highly recommend not acting without professional tax advice.
Taxes Are Paid Up Front
Paying the taxes at the time of investment, as you do with a Roth, may make more sense for long-term investors, or investors who aren’t bothered by paying taxes up front.
Not everyone can contribute
Keep in mind that contributions to Roth IRAs are limited for individuals who make over $117,000 annually; and individuals who make over $132,000 are ineligible for a Roth entirely. For married couples, the phase-out starts at $184,000 and you are ineligible at $194,000. Check with a professional if you have questions about your eligibility.
When confronted with the unknown, your mind will tell you all sorts of things. The worst thing you can do is completely ignore them, assuming everything (i.e. your retirement and new beginning) will just work itself out because you didn’t want to face the unknown, or simply decided you don’t believe in it.
All that is needed to stop uncertainty from snowballing into something uncontrollable is to find a financial professional you can trust, someone who is going to help you achieve your most meaningful life. Every single person has options that will make it possible to be provided for. And getting a real person on your side to help you with the initial decision process is invaluable.
Schedule a portfolio review with Miramontes Capital today to discuss how we can help you achieve your meaningful life through retirement planning.