Roth IRAs are preferred retirement accounts for those who are eligible to use them. These plans present unique savings and distributions terms not available in other plans. Eligibility for depends on two factors: you must have earned income, and your modified adjusted gross income (AGI) cannot exceed the limits set forth for Roth IRAs.
Roth IRAs can be self-directed, allowing account owners access to a vast number of alternative investments to build retirement income.
- Contributions are made after tax, allowing all earnings (capital gains, interest, dividend income) to grow tax-free.
- Tax is paid on contributions the year you make them, but if you meet certain requirements, distributions on earnings are tax-free.
- In most cases, contributions can be withdrawn without taxation.
- Contributions can be made after the age of 70 ½.
- Minimum distributions are not required at the age of 70 ½.
- Tax-free distributions can be taken when you reach 59 ½ years of age if the Roth has been funded for five years.
- Tax-free distributions may also be taken if you meet certain requirements. Examples include being disabled, buying a home for the first time, or paying for higher education costs for a dependent. Check with your tax advisor first to make sure you are eligible for these early distributions.
If your income exceeds the required limits, you may still take advantage of the benefits of a Roth IRA by performing what is known as a conversion. This means that if you already own a traditional IRA or similar account (SIMPLE, SEP, 401(k)), you can move the funds from any of those accounts into a Roth IRA. However, this is considered a taxable transaction of ordinary income to the owner of the retirement account in the year the conversion is made. In other words, applicable taxes are not paid by the retirement account, but instead with personal funds. But, moving forward, the account grows tax-free!
Contact Midland today to get started self-directing a Roth IRA!