If you do not have a Roth IRA, you should look into that because it can play a vital role when added to your current retirement portfolio. The Roth IRA is a unique investment vehicle that comes along with a number of benefits. It doesn’t matter if you are just starting to save or have been investing for years, people of all ages should start taking advantage of the Roth IRA.
Traditional IRA’s allow the investor a tax deduction the year they make the contribution, but then force you to pay taxes on the original amount as well as the growth when you take money out. With the Roth IRA, your investments are made after-tax. So not only does your principal amount come out tax-free, so do any earnings you have made on that investment. Tax-free withdrawals in retirement are a huge advantage.
Backdoor Entry For High Income Earners
There are income limits that can restrict you from investing directly into a Roth IRA. However, there is a way to get around that. You are able to make a non-deductible investment into a Traditional IRA, and then “convert” that contribution to your Roth IRA account. When you convert that money to your Roth, that amount gets added to your taxes, so essentially the money going into your Roth will be after-tax dollars.
Your Heirs Also Benefit
Another great benefit to the Roth IRA is that money you do not withdraw from the account can be passed on to your beneficiaries when you pass away. This can be a very valuable estate-planning tool because it allows your children and grandchildren to inherit money completely tax-free. You are able to leave behind a legacy to future generations by prepaying the taxes on Roth IRA contributions.