Womack Investment Advisers Explain Roth IRAs

Many people are taking advantage of the opportunity to reduce taxes by funding a Traditional IRA. While that makes sense for some Americans, others may benefit by contributing to a Roth IRA that offers no immediate tax break but has other tax advantages, such as tax-free growth potential and tax-free income during retirement. Consider the advantages of Roth IRAs, including:

1. Tax-free growth potential. You won’t get a tax break today, but any earnings in a Roth IRA grows tax-free.

2. Tax-free income. Distributions taken from a Roth IRA are tax-free, too, as long as certain requirements are met. That means the income from your Roth IRA is protected from future tax increases.

 3. No required minimum distributions. You can leave the money in your Roth IRA until your heirs inherit it. You can’t do that with a Traditional IRA. At age 70½, you must take required minimum distributions (RMDs) from Traditional IRAs.

4. Penalty-free early distributions. You don’t have to be age 59½ to take a penalty-free distribution from a Roth IRA as long as the distributions are used for higher education costs, qualified home purchases, unreimbursed medical expenses or specific other expenditures. 

5. Improved tax diversification. When a portfolio is tax-diversified, it includes taxable, tax-deferred and tax-free accounts. 

6. Open an account at any age. Anyone of any age who has earned income can open a Roth IRA. You can also fund one for a child or grandchild who works, giving them a head start on saving.

7. Contribute as long as you work. While contributions to Traditional IRAs must stop at age 70½, that is not the case with Roth IRAs. If you’re planning to open or fund an IRA and you’re not certain whether a Traditional or Roth IRA is the right choice, visit WomackAdvisers.com.