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Roth IRA means an Individual Retirement Account that allows the investor to enjoy tax-free returns and maturity amounts for retirement. This individual retirement plan helps in building a corpus to lead a comfortable life after retirement. The option of tax saving and the flexibility of the plan makes Roth IRA a popular retirement scheme to invest in.
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IRA full form is Individual Retirement Account. Hence Roth IRA is Roth Individual Retirement Account. A Roth IRA account allows the investor to save money for his/her retirement. This is regarded as one of the best retirement plans that is available with tax benefits.
Roth IRA India is available for investors with flexible terms of withdrawal as well as contributions. The account holder under Roth IRA can grow savings in a tax-free manner for a tenure of their choice. A Roth IRA account can also be created in your spouse’s name to double your retirement savings.
|
Features |
Details |
| Flexibility of Contributions |
Yes, contributions can be done anytime |
| Roth IRA Options |
Individual Roth IRA – in the name of the investor Spousal Roth IRA – in the name of spouse (non-working) |
| Spousal Roth IRA |
The spouse must be non-working Contributions for the spousal account go from investors’ income |
| Contributions |
Should be made with your income remaining after tax deductions Contributions do not have any tax benefits |
| Contribution Time Limit |
Must be made by the last date of tax filing for the current year |
| Criteria to Start Distributions |
No such criteria |
| Lock-In Period for Withdrawals |
5 years |
| Early Withdrawals |
Yes, withdrawal can be done without penalty for the purchase of your first home or to cover higher education costs |
| Withdrawals During Retirement |
If you withdraw after 59 and half years, it is tax-free. If you withdraw before 59 and half years, you pay a 10% penalty |
| Tax Benefits |
Yes, no tax is deducted from contributions, earned profit and withdrawals, etc. |
Here are the steps as to how a Roth IRA plan works:
Here are some differences between Roth IRA and Traditional IRA:
|
Particulars |
Roth IRA |
Traditional IRA |
|
Income limits |
There is an income limit set for contributions | There is no income limit set for contributions |
|
Tax benefits |
The contributions are made from an income after deducting tax
Withdrawals are tax-free |
The contributions amount is tax deductible Withdrawals are taxed like regular income |
|
RMDs or Required Minimum Distributions |
No RMDs during the lifetime of the account holder |
Account holders must take distributions at 72 years |
|
Early Withdrawal Penalties |
10% penalty applied if withdrawn before completing 59 and half years of the account holder |
A 10% penalty is applied if the amount is withdrawn before 59 and half years of the account holder |
Roth IRA has several benefits which makes it a popular pension plan. Let us take a look at some of its key benefits:
To Conclude
Roth IRA is a great choice for retirement savings as it helps to save on taxes. The plan allows investors an opportunity to grow their investments in a tax-free way. However, they must contribute to the plan with their after-tax income. This plan allows the account holder to build a sizable amount of tax-free income for retirement.
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It depends on the monetary conditions and the goals of retirement of an individual to decide if the 401K or the Roth IRA is better for them. However, you may consider some factors in this regard, such as;
~ For people willing to earn a high income during their retired life can choose a Roth IRA plan
~ Also, if the investor is financially capable to increase the contribution limit, they can choose to invest in the 401k plan, which helps them to save more during retirement.
Here are some disadvantages of a Roth IRA plan:
~ You cannot enjoy any immediate tax benefits as it is offered at the time of withdrawal
~ The contribution made annually in the case of a Roth IRA is less as compared to in 401k
~ Also, the contributions under Roth IRA are subject to income limits
~ The plan doesn’t allow any early withdrawal facility
For Roth IRA eligibility you must earn a decent income from your job or self-employment facility which will help you to contribute to a Roth IRA plan. However, there is no age limit for contributing to a Roth IRA.
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