What are the Tax Advantages of a Roth IRA Account?
Hudson, NH Resident Seeks Advice
A Roth IRA is a favorite retirement account for many reasons, particularly for the tax advantages that it offers as your money grows and when it is withdrawn. With a Roth IRA, your contributions to the account are after-tax money. This means you are paying taxes on this income up-front. However, as the money then grows in the Roth IRA these earnings are tax-free. You can begin making withdrawals when you reach 59 ½ years of age. These withdrawals are also tax-free. This means that the interest earned from your Roth IRA is not taxed, giving you maximum income in retirement when you may need it most.
A Hudson resident was looking to fast track his retirement savings. Interested in also choosing to invest in the most tax-advantageous account, he sought the advice of the team at Merrimack Tax Associates.
Roth IRA Can Allow You to Pass on Wealth to Your Heirs Tax-Free
Many people don’t realize that a Roth IRA is also a great way to pass wealth on to your heirs, without burdening them with taxes. In some cases, your heirs can let the money in the inherited Roth IRA continue to grow tax-free for years. When the money is taken out of the account, this is distributed tax-free to the heirs. The rules surrounding the inheritance of passing a Roth IRA to your heirs can be tricky, but the tax advantages make it well worth investigating.
Make Withdrawals Tax and Penalty Free at Any Time
While other retirement accounts may charge penalties for withdrawing money before a certain age, a Roth IRA allows for these withdrawals at any time. The catch is that only your contributions, or money that you have already added to the account, can be withdrawn. The earning cannot be withdrawn without owing taxes if these are taken prematurely.
There are plenty of tax advantages for opening a Roth IRA. The Hudson resident was pleased to learn about how these accounts work. He now has plans to start saving for retirement with a Roth IRA, enjoying the tax advantages that this type of retirement account can offer.