This question probably wouldn’t excite too many people, but this gave me an opportunity to really geek out. Here are three reasons why you and/or your spouse need a ROTH IRA. (I could have given 50 reasons, but I felt I would have lost some readership).
1) Tax Free
We’ll start with the biggest reason…the money grows tax free. You contribute to a Roth IRA with money you have already paid taxes on. However, all of the interest and growth inside the account is never taxed again as long as you keep it in the account until age 59 1/2.
Let’s assume you are 30 and start investing $5,000 into a Roth IRA per year. If you average a 7% return over the next 30 years, you will have over $500,000 in the account tax free.
Unlike a traditional IRA or 401(k), you can access the contributions to your ROTH IRA at any time without penalty. (talk to your tax professional before doing this yourself)
If you have an account worth $30,000 and you made contributions of $15,000; then you can access $15,000 without penalty or taxes anytime. The remaining money in the account would be subject to taxes and/or penalties if withdrawn before age 59 1/2.
3) No Minimum Withdraw Requirements
With a Traditional IRA or 401(k) you are required to start taking withdraws from the account in the year you turn 70 1/2. The government makes you do this because this money has never been taxed and they obviously want the tax revenues.
With a ROTH IRA, you are never required to withdrawn the money. You can actually live to 110 and there are no requirements to take the money out of the account. Better yet, when you pass away the money is transferred to your beneficiaries tax free.
In 2015, you can contribute up to $5,500 (depending on income limits). It is a great idea to at least start putting some money into a ROTH IRA as part of your retirement plan.