There are many ways you can save for your retirement, but if you are a US citizen, one of the most effective is a Roth IRA. You may not have heard of the Roth IRA, but the plan has been around since the late nineties and is becoming more and more popular. Millions of people now pay regularly into a Roth IRA, some in fact have completely replaced their 401k with this investment vehicle.
Why? Because it’s a simple, flexible way to invest regularly, with no tax implications. Thats right, any money you make from the Roth IRA is completely tax-free! this aspect of the plan makes it very attractive to investors.
The reason you don’t have to pay tax with a Roth IRA is because the rules state that the only money you can invest in the plan is earnings on which you have already paid taxes. So you can invest money from your wages, bonuses, tips, commissions, etc, but you can’t invest lump sums from non-declared or non-taxed earnings.
By following these rules, you’ve got a great little investment vehicle on your hands. You are safe in the knowledge that when you need to withdraw money from the plan, whether you need it now or whether you take it when you’re retired, you won’t have to pay tax on it. How’s that for peace of mind?
And in terms of flexibility, not only are the plans flexible in terms of when you can withdraw money, but all you have a lot of control over where your savings are invested, especially with a self-directed Roth IRA. You can choose stocks, bonds or even real estate.
One thing you should do if you are considering switching your 401k to a Roth IRA is to talk to a financial advisor. Getting independent financial advice is always a good idea because everyone’s circumstances are different.
Roth IRAs are not ideal for everyone, but millions of savers are certainly making good use of them!
Tags: best roth ira, roth ira, roth ira vs 401k, roth ira withdrawal, roth iras