Okay, you may or may not already know about iLOC Advantage, but what is the advantage of a Roth IRA? That is a question that many people ask. Actually, there are a number of Roth IRA advantages, but there are also disadvantages. Here, we look at both.
Various types of retirement accounts have been created over the years, each with specific tax benefits that sometimes make contributions easier or more attractive. One advantage of a Roth IRA is that withdrawals are not taxed once the preparation period has passed.
However, there is a flip side. Unlike the traditional account, there is no tax deduction for a contribution. It is taxed as regular income. So the tax advantages of a Roth IRA have to do with your future, not your current situation. However, it is possible to take advantage of a Roth IRA and get the tax deductions that come with a traditional account.
Let’s say you have been making the maximum annual contributions to your traditional IRA and have reduced your tax liability by about $1,000.00 per year. You chose the traditional account because you expected your tax bracket to be lower after retirement than it is today. But, something changed.
Because you’ve been making profitable investments or had a sudden increase in income, you realized that your post-retirement level would likely be higher than it is today. If she continues to contribute to the traditional IRA, her disbursements will be taxed along with her regular income at the higher rate.
However, if you transferred those funds to a Roth account, then qualified distributions are not taxable. So, you’ve got the current benefits of tax-deductible contributions, and by rolling over, you get the benefits of a Roth IRA and pay no taxes when you withdraw the funds.
Another advantage of a Roth IRA is that once the aging period (currently 5 years) has passed, you can withdraw your initial investment at any time without penalty. For example, if you rolled over $6,000.00, after five years, you could withdraw that full amount without paying taxes or penalties. Earned interest and earnings must remain in the account until you turn 59 or become disabled.
One of the other advantages of the Roth IRA is that you are not required to take distributions after you pass a certain age. Current law on traditional retirement accounts requires that when a person reaches age 70 1/2, they must begin receiving distributions. For some people, that’s fine, but others continue to work well into their seventies and may not need or want additional income at that time.
Another advantage of a Roth IRA has to do with capital gains, within the account. Profitable real estate investments, for example, are subject to capital gains and state taxes that can run into the thousands of dollars or even more. The same transaction, if done within the IRA, would not be subject to capital gains or other types of taxes.
Many people don’t know about the advantages of a Roth IRA or the different investments that can be made with the funds in the account. Everyone knows about stocks and bonds, but potentially more profitable investment vehicles can also be used, if one opens a self-directed account.
Regardless of your current situation, it’s a good idea to take advantage of a Roth IRA. You can still keep a traditional or benefit 401K today, but the Roth will likely give you more benefits in the future.
Joe Fazchas is a real estate investor as well as the owner and founder of www.iLOCAdvantage.com, a company that partners with private individuals and lending corporations across the country for the sole purpose of financing and/or rehabilitating investment properties. . All of which is done using a proven turnkey Real Estate system… The ILOC IRA.
