A Roth IRA is a very well-known retirement plan that helps elder people to get a tax free plan after retirement but you have to maintain some minimum conditions to get advantage of this plan. This plan is under of US govt. and it is totally different from other retirement plans available in the market. The fundamental of this particular retirement plan is to give you a tax free money withdrawn facility in the time of retirement where other retirement plans grant you this tax free facility at the time of money placement in the plan.
Which points should you remember in the time of choosing providers?
There are various points you have to keep in your mind when you are choosing your Roth IRA provider. There exist some basic criterias of an IRA account regardless how much you are experienced in such investment processes. If you have already made your mind to invest in Roth IRA then maintain these steps:
- The provider should provide you flexibility on your account balance. Account balance limit should be reasonable enough.
- They should provide commission free ETFs and mutual funds with very low cost structure.
- If you want to inactive your account they should not charge fees.
- Best Roth IRA providers should provide basic banking facilities like debit cards and check writing facility.
Some points to consider for a first time investor:
If you are opening your retirement account for the first time then you should always consider these following points:
- The Best Roth IRA providers should give you a very friendly customer service as you are a first timer. They should meet up all your queries clearly about the account.
- They should provide cheap rated ETFs and index funds in very minimal fees.
How is Roth IRA different from Traditional IRA?
Traditional IRA is an individual retirement account which is not tax exempted unlike Roth IRA. Traditional IRA provides the retirement plan to anyone irrespective of their income or age. However, unlike Roth IRA, Traditional IRA is not a suitable plan for people who would be paying more taxes after retirement as this does not provide withdrawals without taxes but charges a certain amount of tax on the amount.
Investment Limits
Similar to Roth IRA, Traditional IRA has the maximum limit of contributions per year (for 2015) set at $5,500 and $6,500 for senior citizens aged above 59 years. Roth IRA has set certain limits for different income groups. But Traditional IRA allows anyone to contribute money in their scheme, i.e. has no income bars. This allows people from all income groups to contribute in Traditional IRA. From this perspective, the return on investment for both Traditional as well as Roth IRA is comparable.
Withdraw money without paying tax:
Contributors can withdraw money anytime in Roth IRA without paying any tax but they have to pay taxes for withdrawal of pre-tax contributions or any earnings when distributed in Traditional IRA. Also, withdrawal of money before the age of 59 and a half will be subjected to a 10% early withdrawal penalty only if there is no exception involved in that particular case. A non-qualified distribution in Roth IRAs is subjected to taxation of the income of the individual and a 10% additional tax will also be charged in normal cases.
In the case of Traditional IRA, the respective contributions lower the gross annual income of the individual officially allowing the person to invest in other schemes and retirement plans as well which he will not get normally. Roth IRA does not lower the gross income but allows certain relaxations for people with lower gross income.