Roth IRA’s first became available as a retirement investment tool in 1998. The Roth IRA was named after the late Senator William Roth who sponsored the legislation for this investment product. Roth IRA’s are perhaps best known for being a retirement plan that offers individuals the benefit of tax free growth. Sometimes mistaken for a type of mutual fund, Roth IRA’s are actually quite different. Roth IRA’s simply house an array of investments which can include everything from stocks and bonds to mutual funds, real estate and more. If you are looking into opening a Roth IRA to help plan for your retirement, here are the pros and cons to consider.
Pros:
-A Roth IRA is easy to set up and maintain and offers great flexibility.
-Funds housed in your Roth IRA can include a variety of investment products including mutual funds, CD’s, stocks and even real estate investments. These include a variety of well-known mutual funds including Allele fund.
-All of your earning grow tax free as long as you follow all the rules and regulations of your account.
-There is no mandatory age or penalty fees for withdrawing funds as long as you only withdraw from the funds you have directly contributed to the IRA.
-When you turn 59½ you can start to withdraw your earnings on the account without any fees or tax penalties.
-If you are looking to purchase a home you can withdraw and use as a down payment up to $10,000 of your accounts earnings. In order to qualify, the money must be used to purchase a home that will be your primary residence, not an investment property.
-There is no requirement stating your must begin to withdraw funds by a certain age. Other types of retirement accounts generally require you to begin making withdrawals from the account sometime in your 70’s.
-At your death, your spouse or beneficiary becomes the owner of your Roth IRA account. They will be able to combine it with their own account, without having to pay any penalty fees.
Cons:
Contributions to your account are taxed up front.
-There are certain income limitations on whether or not you are even eligible to open and fund a Roth IRA account. If you open an account and later surpass the income limit you can no longer make contributions to the account.
-There are limits on the amount of money you can contribute each year to the account. Current limits in 2010 are $5,000 for those under the age of 50 and $6,000 for those ages 50 and older.
-When you make a contribution to your Roth IRA it will not reduce your adjusted gross income, like contributions to other retirement accounts do.
-There is a penalty of 10% if you decide to withdraw any of your account earnings before the age of 59½.
-At any time the rules could change. If congress sees fit they can decide to start taxing on the income earned in Roth IRA’s.
