The Roth IRA: Advantages For Every Stage Of Life

By: Sara Kate Garman, CPA

Whether you’re in the hustle of your career, relishing the joys of retirement, or somewhere in between, a Roth IRA is a financial tool that stands the test of time. This article explores the tax-friendly features, investment potential, and flexibility of Roth IRAs and explains why they are great for every stage of life.

What Is A Roth IRA?

A Roth IRA is an investment vehicle where you can contribute after-tax funds that will grow tax-free. So—that means your contributions and growth can be withdrawn in the future without having to pay tax on the distributions, subject to certain qualification requirements.

Now, let’s dive into why a Roth may be something to consider.

Roth IRA Withdrawals Are Tax-Free After 59 ½.

Whenever anyone hears something is “tax-free,” it piques interest, but it also raises the question, “Well, what are the qualifications?”

Roth contributions are made with after-tax dollars, so the contributions you make are never taxed again. The contributions then grow tax-free within the Roth IRA. Earnings on the contributions are also tax-free at distribution if you’ve reached age 59 ½ and the contributions have been in the account for at least five years.

Hedge Future Taxes By Investing In A Roth Today.

In the unpredictable world of taxes, no one can accurately forecast the future. If you find yourself in a lower tax bracket now than anticipated for the future, or if concerns linger about potential tax rate increases, contributing to a Roth IRA can be a strategic move. By investing dollars that have already been taxed, you insulate yourself from potential future tax hikes. In essence, you secure the advantage of having paid taxes at the current, presumably lower rate, providing a valuable hedge against uncertainties in the tax landscape.

There’s More Flexibility In Distributions With Roth IRAs.

Unlike other retirement plans, with a Roth, you call the shots—there are no forced withdrawals. You can take out money when you need it or leave it for your loved ones—your choice!

Inheriting A Roth IRA Saves Your Beneficiary Taxes.

Inheriting a Roth IRA is a powerful move for heirs. The beneficiary must deplete the account over ten years, but the distributions are generally tax-free to them. Imagine your beneficiary in their prime earning years at your passing—inheriting a Roth saves them a substantial amount in taxes compared to a Traditional IRA, which would be taxed on all withdrawals over a 10-year period. A Roth IRA allows you to hand your beneficiary a legacy that continues to grow and flourish.

What Next? It Depends On Your Life Stage & Current Income.

If you have read this article and think you may be interested in contributing to a Roth IRA yourself, you have a few options depending on your stage of life:

  • Annual Contributions: You can contribute up to a certain amount per year. In 2024, that amount is $7,000 per year.
  • Catch-Up Contributions: You can add more per year if you’re 50 or older as a ‘catch-up.’ In 2024, that amount is an extra $1,000 per year.
  • Income Considerations: Explore “backdoor Roth” options if your income is too high.
  • Retired Individuals: Delve into Roth conversions if you’re no longer earning.

Set Up A Roth IRA With Hess Financial In Harrisonburg

If you’re ready to optimize your financial strategy with a Roth IRA, start by contacting our team. In our initial meeting, we’ll discuss which strategy is optimal for your specific situation.

Disclaimer: This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.