By Maurice Stouse
Planning and saving for retirement. The time value of money. Keeping more of what you earn. Time in the market vs timing the market. Starting early is a key to growing your retirement savings, with tax advantaged investing and tax free withdrawals. These are sayings that we have all heard and read over the years. What about an investment account that can help do all of these things? For individuals who qualify, there is the Roth IRA. What then is a Roth IRA?
A Roth IRA is a retirement account that Americans can use to help build their retirement savings. It is a registration, and the investor can use it to buy stocks, bonds, mutual funds, even CDs and money markets. The Roth IRA was created as a result of the Taxpayer Relief Act of 1997 and was named for its sponsoring senator, William Roth, of Delaware.
What makes the Roth IRA unique is that it is a retirement account that grows tax free and if certain conditions are met, withdrawals are not taxed*. Unlike most IRAs, there is no required distribution (at age 70 ½) and the owner can pass it to the beneficiary who will also avoid paying taxes on withdrawals in most situations.
Many see the Roth IRA as an attractive choice for those who qualify. Generally speaking a couple that earns less than $189,000 per year or an individual that earns less than $120,000 can contribute to a Roth. At income levels above that, the contribution is phased out. Individual contributions are a maximum of $5500 per year before age 50 and can go up to $6500 per year thereafter. An additional qualifier is that the investor has to have earned income in order to contribute. Unfortunately, contributions to a Roth IRA are never tax deductible.
Young people entering the workforce can take full advantage of maximizing time in the market and avoiding taxes on any growth. Not to worry, the IRS has already taxed any income that is used to go into a Roth, so it is an after tax contribution. Many retirement plans allow for pretax contributions which will eventually be taxed along with the growth. Once again, that is not the case for a Roth.
Call or visit with your advisor today and start or continue the conversation on planning and saving for your retirement.
Maurice Stouse is Sr. Vice President of the First Florida Wealth Group (a division of First Florida Bank) and Branch Manager of Raymond James Financial Services, Inc. Offices located at 2000 Ninety-Eight Palms Blvd, Destin, FL. Telephone 850.654.8122.
Raymond James Financial Services, Inc. and First Florida Wealth Group are not tax advisors and do not offer tax advice. See your tax advisor. Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts will occur. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through James Financial Services Advisors, Inc. First Florida Wealth Group and First Florida Bank are not registered broker/dealers and are independent of Raymond James Financial Services.
*Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted.