Hi folks. Dave Piatkowski here with Dickinson Investments. Today I’ve got a blog with four quick bullet points about Roth IRAs. As you know in the past, we’ve kept Roth IRAs front and center because we feel they’re an important part of your overall retirement plan.
First, there’s no age limit to Roth IRAs. Unlike a traditional IRA where you can’t make contributions after age 70 and a half, or with an employer-based plan where once you stop working you can’t make a contribution, with a Roth IRA you can be 80 or 90 and as long as you have some sort of earned income – even part-time – it allows you the ability but not the obligation to make a contribution to a Roth IRA.
Second, there are no required minimum distributions. Unlike a traditional IRA or a retirement plan through your employer where at age 70 and a half you’re required to start taking money out even if you don’t want to, and that amount goes up slightly each year as a percentage of your account value, the Roth IRA can sit there for decades and grow tax-free – which leads me to my third point.
Once you’ve had your Roth IRA open five years and you’re over age 59 and a half, you can pull out all of it or part of it whenever you feel like, i.e. tax-free withdrawals.
So once again, that window starts when you put your first dollar into the Roth. That five-year window starts, and it doesn’t matter when you made the contributions after that. The whole thing is tax-free, whether you pull it out when you’re 95 or 100 or you pull it out when you’re 59 and a half or anywhere in between.
Fourth, what a lot of people really don’t realize is when you’re younger, say you’re under age 59 and a half and you’ve been making consistent $100/mo. or $500/mo. contributions, or when you have your taxes done maybe you’ve added a $6,000 check or something to your Roth IRA or your spouse’s, those contributions, not their growth, but those contributions can be withdrawn early if you have a financial emergency and you want to get a new water heater or buy a new car or you’ve got a couple of kids in college and you’ve got a budget crunch. Most people don’t realize that as long as you kept track of your contributions, you can pull out the contribution when you’re under age 59 and a half, and there are no ramifications for that – whereas with other retirement plans there are.
So to review, here are four quick things we feel are really important about Roth IRAs and why they’re such an important piece of your big picture retirement plan: No age limit, no required minimum distributions, tax-free withdrawals if you should choose to make them, and early withdrawals of just your contributions without any ramifications.
Roth IRAs: a pretty powerful tool for your retirement. Thanks.
[Financial Planning and Investment Management Services offered through Dickinson Investment Advisors, Registered Investment Advisor. Statistics and market information provided by Litman Gregory Advisor Intelligence.]