When it comes to saving for retirement, you probably know that there are a variety of different types of investment retirement accounts that you can choose from. While the Traditional IRA is one of the most popular types of investment accounts on the market, many get involved in this type of account without a full understanding of the pitfalls associated with this type of an account. With a mandatory start date for distributions, and income taxes due on the funds you withdraw, many find themselves considering transferring to the more flexible Roth IRA investment option. If this is an option you find yourself considering, here are three simple reasons why a conversion may be the best option for your retirement needs.
One of the biggest advantages of a Roth IRA over a traditional IRA is that you will not have to pay taxes on the funds that you withdraw, which means this type of account is tax exempt. This is a huge benefit for those who will find themselves living off of a fixed income and may not have the extra funds available to cover the taxes that are due each time funds are removed from a retirement account. It is just important to note funds that are transferred from any form of investment account that utilizes before tax income for contributions will first require taxes to be paid prior to it being deposited into the Roth account. While this may drastically decrease the amount of funds you are able to transfer, it will work out in the long run because the funds will be exempt from taxes as contributions were done with after tax dollars.
Another benefit to converting to a Roth IRA is that there is no cap on the amount of funds you can transfer over. In the past, investors who made over $100,000 a year were not allowed to convert their funds over to a gold ira. That restriction has now been removed, and high income earners also have the ability to transfer to a Roth IRA provided they pay all the required taxes to move the funds from what can be considered a pre-tax account to an after-tax account. The transfer is also exempt from the 10% early withdrawal penalty just as long as the funds are transferred to the new account within the 60 days. Read this gold ira review today.
Lastly, a Roth IRA gives investors the option to withdraw all their principal contributions to the account at any time, completely tax free and without penalty. Since the money that goes into the account has already been taxed, Roth accounts works similar to a savings account, where the money you invest keeps growing and growing. You also have an option to withdraw up to $10,000 in profits penalty and tax free, just as long as the funds have been in the account for a minimum of five years, making this a great option for saving for retirement, as well as an emergency cushion should an unexpected expense arise.
These are just a few of the main reasons why you should consider converting your Traditional IRA to a Roth IRA. With no cap on transfers, and funds that are tax exempt, this investment retirement account can help provide you with the funds you need to live life to the fullest in the golden years of retirement.