Roth IRA: Adding Value to Your Future Retirement Funds

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by: Cheryl Renee Rios
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Date: Thu, 27 Jan 2011 Time: 9:37 PM
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One of the most important decisions to be made in your lifetime is how you will fund your retirement years. While there are many products and saving tools from which to choose when saving for the future, the Roth IRA, or Roth Individual Retirement Account, offers many advantages to the contributor that other retirement plans do not offer. This law was sponsored by the late Senator William Roth and has been in existence since 1998. It is part of the tax laws that govern the amounts of taxes on income and how they are applied. The Roth IRA may be helpful to your overall retirement savings strategy.

A Roth IRA must be designated as such when opened, and all contributions into the account must be from employment earnings, including self-employment earnings. Since the contributions are taxed prior to being placed into the account, there are no taxes when they are withdrawn from it. This is advantageous for individuals who will be in a higher tax bracket at the time of the withdrawal than at the time of contribution to the account. There will be more funds accumulated in the account at the time you want to withdraw from it.

An additional advantage of this type of IRA fund is that if one spouse has a Roth account, the other spouse is able to contribute to that account as long as you file a joint tax return at the end of the year. This enables couples to maximize the contribution amount made to the account. It is important to remember that the annual contribution amount limit is dependent upon your age, filing status, and gross income. For example, married individuals who are under age 50 and file a joint tax return with a combined gross income of less than $176,000 are able to contribute a maximum of $5,000 per year. This amount is in addition to the $1,000 catch-up contribution that can be made. Additionally, anyone can contribute to a minor's Roth fund, which allows greater contributions to accumulate over a period of time.

The greatest advantage of a Roth fund is that there are no minimum distributions required from the fund. You may begin withdrawing your contributions without penalty at any time. You can also begin to make penalty-free withdrawals of earnings if you are at the age 59 1/2 and if your account has been in existence for five years. This allows individuals to begin contributing early and withdraw their contributions if needed for any circumstance or for early retirement purposes. Since the contributions were taxed prior to being introduced into the account, there is no loss of contribution upon disbursement. All the fees have been paid up front, providing for an easy withdrawal process.

While there is a tendency among young workers to put off planning for retirement, it is an important decision that must be addressed early. Discover Bank offers multiple products and services, such as the Roth Contribution Calculator, to help plan for your future, and deposits are FDIC insured, making your investments secure. The Roth IRA offers post-tax contributions that result in no-tax distributions, the ability to contribute to your spouse's account, and no minimum age restriction on withdrawals. These features combined make the Roth IRA a crucial aspect of your retirement savings strategy and Discover Bank is ready to help you reach your retirement funding goal.

About the Author

Cheryl Renee Rios is a freelance writer, with an interest in personal finance. Her articles provide real-world advice, such as the advantages of online banking and how to save for retirement with a Roth IRA. She enjoys sharing success stories and inspiring others to achieve their financial goals. Always looking for useful financial advice, she tends to look up information at http://www.discoverbank.com oftentimes.