We’re big fans of planning for the future at Harvard Grace, which is why we love to talk about things like forecasting and taxes. Retirement fits right into our list of things that you need to think about if you’re working on investing. One way to plan for your future is to open a Roth IRA!
Roth IRAs are an excellent investment vehicle for most folks. The contributions are not tax-deductible, but your capital gains are tax-free. You can also withdraw your contributions at any point, without penalty, since you’ve already paid the taxes on that money. Those are two great advantages of Roth IRAs.
Here are a few more interesting tidbits you might not know about:
- You can use a Roth IRA to buy a house. You can take up to $10,000 of your earnings from your Roth IRA to put toward your home. The only catch is that you have to be a first-time homebuyer.
- Be aware of how much it might cost you in the long-term to take money out of your Roth IRA. At 10.5% interest, that $10,000 is worth over $155k in 25 years. It might be best to find another source of funds, if possible. Consider your retirement.
- Not everyone can get a Roth IRA. There are income limits and some people simply don’t qualify. The numbers can change from year to year, but usually, if you’re single and make more than $125,000, you cannot contribute to a Roth IRA. Likewise, if you’re married and filing jointly, the income limit is $183,000.
- Dividends are free from taxes. Dividends on investments in your Roth IRA are not taxed. That might not seem like a big deal, but if you own a lot of dividend-paying stock, the amount can really add up over the decades.
- You can contribute this year and claim it was contributed last year. Any time before tax day (usually April 15th), you can make a contribution and claim it for last year. That means if you were a little short on funds last year, you can still make your contribution and have the option of making another contribution for this year.
- If you hurry up and get your taxes done early, you could take your refund and apply it to your Roth IRA and claim the contribution for last year. You might have to re-file your taxes, though. Ask your accountant about it.
- It can outlast you. If you or your spouse happens to pass away, the two accounts can be combined without any penalty.
- It’s inheritable. Your IRA can be passed to your heirs without any penalty. With some planning, it’s a great way to pass money along after your death. Roth IRAs are very probate friendly, but see your attorney for more details.
- Even if your spouse doesn’t work, they can still have a Roth IRA. Many people believe that you have to be working to contribute to a Roth IRA, but that simply isn’t true. Contribute to your spouse’s retirement, as well as your own. It’s beneficial to you both.
Roth IRAs are excellent investment vehicles if your income is within the limit. In many ways, it’s a superior choice over a traditional IRA for nearly anyone that has the option of choosing. Check out a Roth IRA and see if it makes sense for you! If you’d like to talk to someone about how you’re planning for your retirement and/or tax and investment opportunities, grab some time with us today. We’re always up for a good convo!