When it comes to a no-brainer retirement investing vehicles, consider the Roth IRA, according to one financial expert.
“I actually think the Roth IRA is like the golden egg,” Sun Group Wealth Partners managing director Winnie Sun recently told Yahoo Finance Live. “If you qualify, I think you should strongly contribute each and every year.”
Calling it her “first route” into retirement saving for people of “any age,” Sun said if your annual household income exceeds the limit, then “go through a conversion into a Roth” from a traditional IRA. with the assistance of a tax accountant.
Individuals making less than $125,000 a year or married couples who file jointly and earn less than $198,000 can contribute up to $6,000 per year (or $7,000 if 50 or older) with a Roth IRA. “If you make more than the salary cap of the Roth IRA, you can always contribute to the traditional IRA,” which doesn’t come with earnings maximums.
Part of the Roth IRA’s appeal is that it enables savers who’ve held open accounts for at least five years to draw on their savings before retirement, Sun explained. The account is funded by after-tax dollars, so withdrawals of contributions are not taxed. Earnings also aren’t taxed if the funds are for a qualified withdrawal.
One such qualified withdrawal is one for the purchase of a first home. Roth IRA savers are able to “withdraw up to $10,000 for the purchase” that can be applied to a down payment or closing costs and comes with tax advantages like not paying “income taxes or early withdrawal fees.”
Another qualified withdrawal is one made by a beneficiary or your estate after your death.
The Roth IRA is “a great way to move assets from one generation to another,” Sun said, provided the saver has “sufficient income and savings” to financially support their golden years.
Considering Roth IRAs don’t come with required minimum distributions, or RMDs, like traditional IRAs, money can continue to grow and be left to future generations who will “inherit the tax benefits of tax-free distributions” provided they withdraw within five years, she said.
Other qualified withdrawals are made when you're 59½ or older or you have a permanent disability.
Non-qualified withdrawals — or ones that don’t meet these criteria — can be taxed and could trigger a 10% early withdrawal penalty.