What is a Roth IRA?
A Roth IRA differs from a Traditional IRA in that you fund a Roth retirement account with after-tax dollars, meaning you have already paid taxes on the money you put into it. In return for no up-front tax breaks, your money grows and grows tax free, and when you withdraw funds at retirement, you pay no taxes. That’s right – every penny goes straight in your pocket!
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Roth IRA Advantages
Tax Free Distributions
All withdrawals after age 59½ will be tax free. This means that any gains made on the account investments are not taxed when withdrawn after this minimum age limit. In addition, direct contributions to a Roth IRA may be withdrawn tax free at any time prior to this minimum age, since tax has already been paid on these amounts.
First Time Home Buyers
Up to $10,000 in earnings withdrawals can be made from a Roth IRA tax free, if the money is used to acquire a principal residence for a first time buyer, who is the Roth IRA owner, their spouse, or their lineal ancestors and descendants and has not owned a home in the previous 24 months. (NOTE: Certain restrictions apply regarding prohibited transactions which must be reviewed before considering this option.)
The Roth IRA regulations allow for tax free distributions of earnings in the event of a disability. There are time requirements that must be met and the withdrawals are subject to certain limitations.
No Required Withdrawals
The Roth IRA does not require distributions based on age, like other tax-deferred retirement plans such as a Traditional IRA. If you do not need the money and want to leave it to your heirs, this is a great way to accumulate income tax-free. On estates large enough to be subject to estate taxes, a Roth IRA may be able to reduce estate taxes since tax dollars have already been subtracted.
Roth IRA Disadvantages
Delayed or Missed Tax Advantages
Contributions to a Roth IRA are not tax deductible like contributions to a Traditional IRA or most employer sponsored retirement plans. Contributing to a Roth IRA, therefore, will not decrease your Adjusted Gross Income (AGI), as some other options do. In addition to the lower taxes available by a lower AGI, Roth IRA contributors may also miss out on certain tax credit deductions that may have become available with a reduced AGI.
A taxpayer who contributes to a deferred tax retirement plan, such as a Traditional IRA, in a state which has an income tax, may potentially move to a state without income tax upon retirement and gain an additional tax benefit, one that would not be available for a Roth IRA contributor.
Should the contributor not live to retirement or much beyond, the contributor will have lost all personal benefit, leaving only the possibility of reducing an estate tax burden on their heirs.
The Rules Could Change
Congress may change the rules that currently allow for tax free withdrawals of Roth IRA contributions. Someone who contributes to a Traditional IRA, therefore, is able to realize an immediate tax benefit. Whereas ,someone who contributes to a Roth IRA must wait for a number of years before realizing the tax benefit. In the mean time that person runs the risk of the rules changing before they have the opportunity to reap the anticipated benefits.
“Provident Trust Group has grown to over 20,000 clients with over $3 billion in assets currently in custody. Both internationally and across the U.S., clients and their teams of financial advisors have placed their confidence in us. ”
Why Open a ROTH IRA with Provident?
Provident does not sell proprietary products and is not affiliated with any bank or financial institution. Our highly-qualified team of professionals focus on providing personalized, timely service, something our clients have found they can rely on.
Complex Transactions Simplified
The Provident approach focuses on simplifying the complexities related to retirement savings and investments. In addition, our clients can trust that every IRS recording and reporting requirement is met and that we will answer any questions they have regarding Roth IRAs and other forms of retirement investment accounts.
All it takes is a phone call, to begin your relationship with the professionals at Provident, though we’d be happy to meet you in person at our Las Vegas office as well.
Give us a call at (888) 855-9856. We’d be happy to answer your questions related to retirement savings and investments through a Self-Directed Roth IRA, or any other retirement plan options that you are considering.