Roth IRA – What is a Roth Individual Retirement Account (IRA), Check Features & Benefits?

Roth IRA or Roth Individual Retirement Account is a type of individual retirement plan that one can invest in to accumulate enough corpus for a comfortable life after retirement. In this post, we cover details of the Roth IRA plan for you to understand it better.

Roth IRA Full Form?

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.

What is a Roth IRA?

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.

Roth IRA Features 

Roth IRA Eligibility Criteria

• There is no age limit to join the Roth IRA plan
• The Roth IRA income limits state that individuals interested to join the Roth IRA plan should earn income from salary, wages, self-employed, etc.
• In the case of a spousal Roth IRA, you need to file a joint tax return
• Here, the income of the investor must be higher than the Roth IRA contribution limit set for the spousal Roth IRA

How Does a Roth IRA Plan Work?

Here are the steps as to how a Roth IRA plan works:

• The first step is to check the eligibility of the plan and join it by opening the Roth IRA account
• Now, contribute to the account with the income saved after paying your taxes as per the prescribed limit
• You can select from a wide range of investment options such as stocks, bonds, MFs, ETFs, etc.
• Enjoy the tax-free growth of your funds
• If you withdraw your Roth IRA account after completing 59 and half years and the 5-year lock-in period, you can enjoy the tax-free withdrawal
• Earlier withdrawals might be subjected to penalties
• The Roth IRA account doesn’t have minimum distribution criteria at any particular age. Hence, the account holder can enjoy tax-free growth of their funds for long

Roth IRA vs Traditional IRA

Here are some differences between Roth IRA and Traditional IRA:

Roth IRA Benefits

Roth IRA has several benefits which makes it a popular pension plan. Let us take a look at some of its key benefits: 

• The best thing about a Roth IRA plan is that it allows tax-free withdrawals. So, under this scheme, you can enjoy tax benefits in the case of both earnings and contributions
• Roth IRA doesn’t have a criterion of RMD or Required Minimum Distributions. So, the account holder is not required to take RMDs at a particular age. Hence, they can see their money growing in a tax-free manner over a long period
• Another advantage of a Roth IRA account is that it allows the account holder to pull out their contributions any time they want. There are no penalties for the withdrawal of contributions. However, when it comes to the withdrawal of earnings, it is subject to penalties
• Being a retirement savings strategy, Roth IRA helps in tax diversification during retirement. Hence, you can enjoy withdrawing money from both taxable and tax-free income streams and managing your tax liability during retirement
• Under the spousal Roth IRA India, an investor can open an additional Roth IRA account for their non-working spouse to maximize their retirement savings

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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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