Roth IRA is one of the most accepted Individual Retirement Funds. Unlike other traditional retirement plans this account provides huge tax benefits without any other restrictions. Any person in any age group can join this plan and gain maximum benefit. But there are some specifications regarding the income which has to be satisfied in order to join the plan. There are diverse people who are making use of this plan. Some of the advantages that trigger this pendency are:
- Roth IRA unlike other traditional retirement plans offers tax break at the time of investment rather than at a later stage. So at the time of withdrawal there is no need to pay the taxes.
- The plan mainly helps those who are in a lower tax bracket at the time of investment. This is because at the time of investment you will need to pay the tax according to the tax bracket at the time of investment. Even if your tax bracket increases by the time of retirement there is no need to pay extra tax. This will help you gain some savings.
- In case a Roth IRA holder dies, then the person’s spouse even if owning another Roth IRA can combine both into a single plan without paying any penalty.
- The assets in the Roth IRA can always be passed to the heirs if the person desires so.
- The scheme doesn’t collect high penalties like other retirement plans if the money is withdrawn before retirement. In such cases sometimes a penalty of 10% may be collected. If the money is withdrawn in order to pay college fees or to buy a house, then the penalty will not be collected.
- There is no restriction regarding the age in order to join a Roth IRA plan. All those who satisfy the income specification can join the plan.
- Those who invest in the scheme can develop their own portfolio in the Roth IRA. Along with mutual funds, securities, real estate and other means of investment.
Though there are a number of advantages that one gets by joining Roth IRA, there are some disadvantages as well. Some of them are:
- Those investments made into this account are not tax deductible. In the case of traditional retirement plans this is just the opposite. Thus those who make contributions to traditional IRA will get tax savings while those who have invested in an IRA will not realize this kind of an immediate tax reduction.
- The eligibility to make investments in this account actually phases out at certain income limits. In case of some plans that are tax deductible there is no income limit.
- A person who pays the state income taxes and who contributes to this IRA scheme will be required to pay the tax on the amount contributed to the scheme in the year when the money is earned.
Though people take into consideration these advantages the advantages of the scheme attract more and more people to take up the scheme. This account ensures a safe retirement life and this has triggered many youngsters to take up Roth Ira schemes.