Why would anyone want a Roth IRA?
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- They’re easier to set up than Traditional IRA’s
- It’s a retirement account that allows you to withdraw your gains tax free
- You can use the funds for a first time home purchase (up to $10,000 towards that down payment!)
Roth IRAs are important for investors of all ages but, especially young adults. Why are so many bloggers talking about Roth IRAs today?
A Shocking Disappointment
When Jeff Rose gave a talk to 50 college seniors at SIU Carbondale and asked how many knew what a Roth IRA was, he was floored when none of the students even raised their hands. This moment inspired Rose, a certified financial planner & blogger at Good Financial Cents, to start the Roth IRA Movement. With great qualities like being able to contribute to 2011’s Roth IRA before Tax day, April 17th, 2012, not affecting your tax return and working well with a 401(k) contributions, 50+ bloggers are talking today about why opening a Roth IRA is important and what every young investor needs to know, including:
What is a Roth IRA?
- A Roth IRA is a retirement fund (similar to a traditional IRA) where you contribute up to $5000 after-tax money each year, and the money can be withdrawn in a tax-free environment. You can’t deduct contributions to a Roth IRA and can make contributions until age 70 ½.
What is the deadline to withdraw money from a Roth IRA?
- While traditional IRAs require minimum withdrawals starting at age 70 ½, Roth IRAs have no mandatory withdrawal requirements.
When can you withdraw funds from a Roth IRA?
- You can withdraw money from a Roth IRA anytime, but may have a penalty under circumstances. To make ‘qualified distributions’ in retirement, you must be at least 59 ½ years old and contribute for at least 5 years prior. However, you can escape penalties under qualifying circumstances.
Under what circumstances can you prematurely withdraw money from a Roth IRA?
- College expenses for you or your spouse, children or grandchildren
- Medical expenses greater than 7.5% of your adjusted gross income
- First-time home purchase (up to $10,000)
- Sudden disability
Here is what you need to set up a Roth IRA NOW:
- Routing & account number from a checking account
- Social security number
- $5
The Roth IRA Movement today brings awareness to the great qualities of a Roth IRA. Also, you can continue to contribute to last year’s IRA before Tax day, April 17th, 2012. Because there is a maximum yearly contribution, experts recommend starting a Roth IRA sooner than later.
Those thinking of buying a home with a mortgage such as a FHA loan in the future can use up to $10,000 of Roth IRA funds. Therefore, a couple with Roth IRA funds could collectively withdraw $20,000 for a down payment. If you do not have a Roth IRA, you could open one today and contribute $5000 each for 2011 and 2012. Starting in January 2017, you can use that tax-free money for a home. Those who have begun contributing to their Roth IRA starting in 2007 (or 2008) could potentially withdraw those funds for a home this year.
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