Roth IRA Tax Benefits Explained

A Roth IRA is one among five types of individual retirement accounts. As the name suggests, it is a retirement savings plan, and it gets a very unique tax treatment. While most other plans provide tax breaks on contributions, this one has all the tax benefits at the other end, upon withdrawal.

Earnings that accrue in the account are not taxed. The way things work for these IRAs is that either the contributions are taxed or the withdrawals. Since the earnings can grow without having to contend with tax, the funds grow a lot faster than most other plans.

In the traditional IRAs, the taxes are paid on withdrawals while contributions are tax free. In a Roth IRA, the withdrawals are tax free, but contributions are taxed. The latter case is obviously more beneficial, since the earnings are never taxed, even upon withdrawal.

Then there is also the flexibility and control over distributions aka withdrawals. While there are heavy penalties (around 10%) for early withdrawal of funds from other retirement plans, this one allows it subject to certain conditions. One rule that has to be followed is that funds in this account need to have a 5-year seasoning period before they can be withdrawn free of a penalty.

Conversely, if the account holder doesn’t want to start taking disbursements even after age 70 1/2, that is also possible. This freedom and control over distributions allows people to pass on the account as is to heirs. On a related note, it can reduce the estate taxes since taxes have already been paid on it.

All said and done, it is a very advantageous plan for most people, as compared to other retirement plans. But that’s also one of the reasons why the eligibility criteria are harder to surmount. Only those who qualify based on income levels can contribute to a Roth IRA, and even then there is a maximum allowable contribution limit.

Gold IRA Specialists will help you set up a Gold Roth IRA account. Contact a Silver or Gold IRA Specialist today, toll free at 1-855-343-GOLD