Is starting a Roth IRA a good idea? This is one of the primary questions people ask when thinking about saving for retirement.
Starting an IRA is Important
Without doubt, starting an individual retirement account (IRA) is a critical step and a good idea for anyone who is getting older - and that is everyone! Retirement age will creep up on you before you know it, and starting an IRA is an easy way to contribute to your retirement savings, even if you are already in your 50s.
Before deciding whether you should start a Roth IRA, it's important that you understand what a traditional IRA is, so you can decide whether to start a Roth IRA or a traditional IRA.
Traditional Individual Retirement Accounts
Regulalar IRAs have been around since 1981. You can contribute up to $4,000 per year of earned income into an IRA. These amounts are tax deductible in the year they are made. Taxes on the earnings on your contributions are deferred until they are paid out to the account holder, which cannot happen until you reache the age of 59 and one-half years.
The Other Major Type of IRA - Roth
Roth Individual Retirement Accounts have been around only from 1998. There are earnings limits that stop people who earn too much from benefiting from the Roth IRA. The limits currently are that single taxpayers who earn more than $116,000 and married taxpayers who earn more than $169,000 cannot contribute to a Roth IRA. So if you earn that much and you are asking yourself, "Should I start a Roth IRA?" the answer is definitely no. For both single and married taxpayers who earn more than $101,000, there are phased reductions in the amount an individual can contribute to a Roth IRA.
If you aren't stopped from having a Roth IRA because of the earnings test, the answer to the question, "Should I start a Roth IRA?" is most certainly yes. Unlike a traditional IRA, the contributions an account holder makes to a Roth IRA are not tax deductible in the year in which they are made. By contrast, the amounts of contributions, and the income they earn, are not taxed during the account holder's lifetime.
If you earn well under the income cap now, it is quite probable that you will reach the earning limit during your career, and then you will wish you had taken advantage of the Roth IRA when you had the chance to do so. Unless tax laws change significantly, a Roth IRA is one of the best investments you can make. So repeat after me: I should start a Roth IRA. I should start a Roth IRA. I should start a Roth IRA.
How to Invest Your IRA
An IRA is just a holder for your actual investments. IRAs must be invested in some sort of financial instruments to make money that will accumulate for your retirement.
There is a whole range of trading vehicles that could be suitable for your IRA. Most financial advisers suggest a blend of bonds, small capital stocks, large capital stocks, and mutual funds made up of shares in domestic companies and international companies. However, a mutual fund can also hold other kinds of investments.
The conventional wisdom is that you should invest more conservatively as you near retirement. That is because investments are cyclical over long periods of time, based on the national economy. You don't want to be caught short at retirement time or have to work longer than you had planned to because an economic downturn cycle occurred when you happened to reach retirement age.
If You Can, You Should Start a Roth IRA
The benefits of a Roth IRA over a traditional IRA are enormous: limited contributions vs. no limit on contributions; deferred tax on earnings vs. no tax on earnings. There is virtually no downside to starting a Roth IRA.
Roth vs. Traditional IRA Use this calculator to determine which IRA may be right for you.
Starting an IRA is Important
Without doubt, starting an individual retirement account (IRA) is a critical step and a good idea for anyone who is getting older - and that is everyone! Retirement age will creep up on you before you know it, and starting an IRA is an easy way to contribute to your retirement savings, even if you are already in your 50s.
Before deciding whether you should start a Roth IRA, it's important that you understand what a traditional IRA is, so you can decide whether to start a Roth IRA or a traditional IRA.
Traditional Individual Retirement Accounts
Regulalar IRAs have been around since 1981. You can contribute up to $4,000 per year of earned income into an IRA. These amounts are tax deductible in the year they are made. Taxes on the earnings on your contributions are deferred until they are paid out to the account holder, which cannot happen until you reache the age of 59 and one-half years.
The Other Major Type of IRA - Roth
Roth Individual Retirement Accounts have been around only from 1998. There are earnings limits that stop people who earn too much from benefiting from the Roth IRA. The limits currently are that single taxpayers who earn more than $116,000 and married taxpayers who earn more than $169,000 cannot contribute to a Roth IRA. So if you earn that much and you are asking yourself, "Should I start a Roth IRA?" the answer is definitely no. For both single and married taxpayers who earn more than $101,000, there are phased reductions in the amount an individual can contribute to a Roth IRA.
If you aren't stopped from having a Roth IRA because of the earnings test, the answer to the question, "Should I start a Roth IRA?" is most certainly yes. Unlike a traditional IRA, the contributions an account holder makes to a Roth IRA are not tax deductible in the year in which they are made. By contrast, the amounts of contributions, and the income they earn, are not taxed during the account holder's lifetime.
If you earn well under the income cap now, it is quite probable that you will reach the earning limit during your career, and then you will wish you had taken advantage of the Roth IRA when you had the chance to do so. Unless tax laws change significantly, a Roth IRA is one of the best investments you can make. So repeat after me: I should start a Roth IRA. I should start a Roth IRA. I should start a Roth IRA.
How to Invest Your IRA
An IRA is just a holder for your actual investments. IRAs must be invested in some sort of financial instruments to make money that will accumulate for your retirement.
There is a whole range of trading vehicles that could be suitable for your IRA. Most financial advisers suggest a blend of bonds, small capital stocks, large capital stocks, and mutual funds made up of shares in domestic companies and international companies. However, a mutual fund can also hold other kinds of investments.
The conventional wisdom is that you should invest more conservatively as you near retirement. That is because investments are cyclical over long periods of time, based on the national economy. You don't want to be caught short at retirement time or have to work longer than you had planned to because an economic downturn cycle occurred when you happened to reach retirement age.
If You Can, You Should Start a Roth IRA
The benefits of a Roth IRA over a traditional IRA are enormous: limited contributions vs. no limit on contributions; deferred tax on earnings vs. no tax on earnings. There is virtually no downside to starting a Roth IRA.
Roth vs. Traditional IRA Use this calculator to determine which IRA may be right for you.
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Article Source: DesireToRetire.com
Article Source: DesireToRetire.com
