What are the Tax Benefits of a ROTH IRA?
Although there are some clear tax benefits associated with a traditional IRA, it’s important to note that a ROTH IRA also comes with its own tax benefits.
- ROTH IRAs are funded with after-tax dollars. Since you’ve already paid tax on the money you contribute to a ROTH IRA, you can grow your money tax-free.
- You can usually withdraw contributions and earnings tax-free if you’re at least 59 ½ years old and you’ve held your account for five years.
- There’s no need to take a required minimum distribution (RMD) from a ROTH IRA. Since RMDs can increase your taxable income, a ROTH IRA helps lower your tax liability.
- If you’ve held a ROTH IRA for at least five years, your beneficiaries can withdraw the money tax-free in the event of your death.
ROTH IRAs are a helpful way to boost your nest egg and fund your retirement without worrying about losing any of your hard-earned contributions to a tax bill.