A Roth IRA is a retirement investment option that is easy to set up, simple and maintain, and comes with tax advantages which enables you to build wealth as well as increase your retirement savings for the long term. Roth is a tax-free growth investing tool which helps you shape the future financially. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax- and penalty-free after 59 ½, once you’ve had your account open for five years.
Benefits of a Roth IRA
- Withdrawals of earnings are free from federal income tax, as long as the Roth IRA has been in operation for five years and you are at least 59 ½
- The distributions for your beneficiaries come tax-free.
- RMDs (Required Minimum Distributions) are not necessary.
- You can withdraw contributions at any time without federal income taxes or penalties.
How Much do You Need to Start a Roth IRA?
The unique thing about the IRA is that you are not under compulsion to invest a ton of money in order to open an account. The IRS does not need a more minimum amount to open a Roth IRA. As opposed to most mutual fund companies, you can start a Roth IRA with as little as $50.
Roth IRA Eligibility
If you earn income, then you are eligible for Roth IRAs. However, you can’t contribute more than you make. If your 19-year old son or daughter. Happens to earn an income of $3,000. They can contribute up to $3,000 to a Roth IRA. You on the other hand can also contribute. The $3,000 on their behalf as long as you can afford it.
2020 Contribution Limits of Roth IRAs
The 2020 limits of Roth IRAs is as follows: the total. Amount you can contribute to either a Roth IRA or a traditional IRAs is $6,000 or $7,000 if you are age 50 or older.
Setting Up a Roth IRAs for Your Spouse Who is not Working
You can set up a Roth IRA for your spouse who is not working as long as you file a joint income tax return, and have a taxable income. Both of you can contribute to your own separate Roth IRAs, even though the IRS income eligibility limits still apply.
How to Set Up a Roth IRAs
It is advised that you open a Roth IRAs using the help of an investing professional who will meet with you face-to-face. However, before you meet with your investment professional, ensure that you gather some information and fill out the application. Here are the necessary things you will need to have handy to successfully open your account:
- Your driver’s license or any other form of photo identification.
- Your social security number
- Bank’s routing number and your checking or savings account number
- Your employer’s name and address.
As part of the process of opening a Roth IRAs, you will also be required to choose a beneficiary (or beneficiaries), who could inherit your account. You are to supply their name, social security number, and date of birth.
Thereafter, you can make your initial deposit and/or set up automatic contributions. You will be able to open your Roth IRA with a lump sum up to the annual limit. Alternatively, you may choose to deduct a specific amount from your bank account each month. You are at liberty to do both as long as you do not exceed the contribution limit for that year.
What Can I Invest My Roth IRA In?
Your Roth IRA can be invested in almost anything. However, it is recommended that you invest in mutual funds, as they have the potential of helping you to build wealth over time, mostly with a Roth IRAs tax.