Three Facts about Roth IRAs You Need to Know
Before you make any investment in a Roth IRA, you need to know how it can help you save for retirement or for the future and what it doesn’t do for you. One of the best way to arm yourself for a secure financial future is to understand how things work, so keep reading!
You Only Pull Out Money When You Want to
One of the best features about a Roth IRA is that you can choose when you start withdrawing money when YOU want to, not when the IRS tells you to. This means you can start saving for your children’s retirement if you like, and they can inherit it later on and do what they want with it. You can just keep saving over the years and take distributions from your account tax free (since it’s funded by income that you’ve already paid taxes on) when you need it.
Withdraw from Your IRA after 5 Years
You can withdraw from your account five years after you opened it, or converted one account into your Roth account. If you open one Roth account and then many others, your 5 years starts ticking after you opened your first account and not each individual one. You’ll still have to pay income tax if you pull it out for an ineligible reason, but you won’t have to pay a penalty. This makes a Roth IRA an attractive option for saving!
You Can Use Distributions from your Roth IRA to Pay Medical Bills and Buy a House for the First Time
Understanding that sometimes people need to pull money from savings to pay for life’s emergencies, the IRS allows you to pull out money before you’re 56 ½ if you have a reason. These can include:
- Paying insurance premiums while you’re unemployed
- Covering the costs of medical bills that you have not been reimbursed for
- Withdraw up to $10,000 for the down payment on your first home
There are many ways that a Roth IRA will help you save for retirement, and with benefits like these it’s a clear choice for your future savings plans. One thing any investor should keep in mind is that a Roth is not a savings account; if you want to be able to cover real emergencies, you should always keep $1,000 to $3,000 in a savings account so you’ll have cash on hand. It can take a while to move money from a Roth account back into your bank, so when you take distributions always allot time in your plans!