Roth Individual Retirement Account (IRA)
Roth Individual Retirement Account (IRA) is a specific type of retirement plan that is tax exempt under certain conditions. It is one of various retirement plans under which a limited amount of retirements savings (of individuals) are tax exempt. The Roth Individual Retirement Account is named after late Senator William Roth of Delaware. Roth Individual Retirement Account differs from other (taxed exempt) retirement plans in that instead of the money being placed into the retirement account being tax exempt, the money withdrawn from the account during retirement is tax exempted.
Advantages of Roth Individual Retirement Account (IRA)
Following are some advantages of Roth Individual Retirement Account;
• As mentioned above, the most important advantage of Roth Individual Retirement Account is that money can be withdrawn tax free at any time.
• An individual is eligible to participate in a Roth Individual Retirement Account even if he or she has a conventional retirement plan such as 401(k).
• If a Roth Individual Retirement Account owner dies and his or her spouse having his or her own Roth Individual Retirement Account becomes the sole beneficiary, he or she is allowed to combine both Roth Individual Retirement Accounts into one without a penalty.
• Roth Individual Retirement Account does not have distribution based on age. For example, if you want to save tax free money for your heirs or don't need to withdraw it, you are free to leave it in the account for indefinite periods.
• Roth Individual Retirement Account can also reduce estate taxes on real estate large enough to be subject to estate taxes since tax dollars have already been deducted.
• Since a Roth Individual Retirement Account has already been taxed, it will be equivalent of a much larger contribution (or sum of money) in a traditional Individual Retirement Account which will not be tax deductible upon withdrawal.
• Unlike social security, assets in the Roth Individual Retirement Account can be passed on to one or more heirs by the owner as and when required.
• Under a Roth Individual Retirement Account $10,000 in earnings withdrawals are considered qualified (tax-free) for the purpose of acquiring a principal residence for a first time buyer. However, one needs to keep in mind that the property needs to be acquired by a Roth Individual Retirement Account owner, their spouse or their direct ancestors and descendants and the owner must not have owned a home in the last 24 months.
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