Squirreling away your retirement savings? Financial advisers concur: When it comes to successful retirement planning, Roth IRAs offer the most valuable benefits.
Saving for your retirement is one of the best investments you can make for your future. A number of readers recently asked us about how to find the best retirement account. A Kingston, R.I., woman wrote to ask if an IRA or a Roth IRA would be a good investment if she wants to retire at 50. She's a single, 30-year-old business owner. And a North Carolina woman says she and her husband, both in their 30s, have no retirement plan in place and wonders how they should begin?
|Who qualifies for a Roth IRA?|
|Joint tax filers with adjusted annual gross income below $173,000.|
|Individual tax filer with adjusted annual gross income below $110,000.|
|Roth IRA's are penalty free if withdrawn after 5 years and you're 59 1/2 years old and the money is used for disability, education or a 1st home. Remember you will pay income tax on the money withdrawn.|
We put their questions to the experts at the National Association of Personal Financial Advisors. Nancy E. Frank, in New York City, and Ileen B. Malitz, who works out of Milford, Pa., and Naples, Fla., both agreed that the two questioners should set up IRAs. And both concur that the Roth IRA is the better product, no matter how much, or how little, you can afford to put in it.
Frank says your first action, though, should be contributing the maximum to any qualified plan you already have in place, such as a 401(k). "If you're covered under anything at work, like a 401(k), max it out first. Then use any extra funds to open a Roth IRA."
Malitz also points out there are numerous ways to get your funds out of a Roth IRA, whereas a traditional IRA is much more limiting. With a Roth IRA you can make withdrawals after you've had the account for five years and you are over 59 1/2 years old without paying a penalty for education expenses for yourself or members of your family or up to $10,000 to build or buy a first home for you, your grandchildren or children.
Most working Americans are eligible for Roth IRAs. If you file a joint income tax return, you can open a Roth IRA until your combined household income reaches a gross $173,000 a year.
If you file an individual tax return, those levels are reduced to $110,000 a year for eligibility, and your Roth IRA contributions are prorated between $110,000 and $125,000 a year.
Contributions into a Roth IRA or 401(k) can be made as a lump sum or in smaller amounts throughout the year. A 401(k) contribution is automatically taken out of your paycheck and deposited into the account. Many banks will help you set up automatic deposits into a regular or Roth IRA as well.