By John Gable
As you save for retirement, you’ll want to take full advantage of the investment vehicles available to you — and one of the best is a Roth IRA. But what sets it apart from other accounts?
Three key factors distinguish the Roth IRA:
• Tax-free earnings – When you invest in a Roth IRA, your earnings can grow tax free, provided you don’t begin taking withdrawals until you’re 59½ and you’ve had your account at least five years. If you don’t meet these criteria, withdrawals of earnings will be subject to taxes and a possible 10 percent penalty.
• No penalties on withdrawals of contributions – You fund a Roth IRA with after-tax dollars, which means you can withdraw your contributions — not the earnings — at any time for any reason, without facing taxes or penalties. So, you could use some of your Roth IRA money for non-retirement purposes, such as helping pay for a child’s college education.
• No required withdrawals at age 73 – With a traditional IRA or a 401(k), you must start taking withdrawals — called required minimum distributions, or RMDs — once you reach 73. But this rule doesn’t apply to a Roth IRA — you can keep it intact as long as you like. You may need to tap into it for some of your retirement income, but if you don’t use it all, the remainder could benefit your beneficiaries.
A Roth IRA does share one similarity to a traditional IRA: It can be funded with virtually any type of investment, including stocks, bonds, mutual funds, certificates of deposit (CDs) and so on.
