April 15th is right around the corner. In light of tax deadlines, I thought I would share my two cents on the subject of ROTH IRAs.
Of course, everyone should have an IRA. It is one of the last tax enhancements left and a great savings plan for your retirement. Around this time of the year, our customer service representatives at IRA Innovations get a lot of questions on ROTH versus Traditional IRAs.
The Traditional vs Roth IRA Comparison
Both a traditional and ROTH IRA are tax enhanced. Funds placed in a traditional IRA are from pre-tax dollars, so the savings are deferred. When you take the money out of a traditional IRA during retirement, you will pay tax on that distribution.
With a ROTH IRA, funds are allocated in after tax dollars. You will have paid the IRS tax first, so any distributions in retirement will be tax-free.
ROTH IRAs are ideal for young working people who have plenty of time to build a portfolio and reap the rewards of compounding on a tax-free basis. They can also make sense for the older worker. Speak to your financial professional or accountant if you are uncertain if a ROTH IRA makes sense for you.
The biggest benefit I see to a ROTH IRA, provided you are at least 59 ½ and have had the account for at least 5 years, is the ability to withdraw or take distributions whenever you want with no tax.
Imagine having a self-directed IRA that compounds with absolutely no tax due!
Let me give you an example.
Let’s say you bought a property in your self-directed ROTH IRA for $100,000 two years ago when the market was sluggish, or worse. Today you decide, because the hedge funds have come to your market which has increased values, that you want to sell this property and can get $150,000. The result is a $50,000 gain in your ROTH IRA, completely tax-free!
The other beauty of a ROTH IRA is tax-free wealth for your heirs. For those of us who expect to leave a portion of their IRA savings to heirs, what better way to do so then with a tax-free account!
With a self-directed IRA from IRA Innovations, there are also many alternative investments available to you. From precious metals, to investment in business and more, the option is yours. It truly is a world of choices for the independent investor who wishes to accumulate wealth whether tax-deferred or tax-free.
Whether you opt for a traditional or ROTH IRA, the key is to make the contributions and start saving for your financial future. Don’t forget you can still make 2012 contributions up until April 15th. Need more information? Visit www.irainnovations.com and start taking control of your IRA today!