The world of individual retirement savings accounts isn't exactly known for its rapid innovation process. But the Roth IRA could be considered an accomplishment because it continues to serve consumers well. Below are five of the most notable advantages the Roth IRA:
Tax-free retirement income
Because you took care of your tax tab upfront — funding the account with post-tax dollars (remember, Roth contributions are not deductible) — as far as the IRS is concerned, its business with you is complete. When you start making withdrawals in retirement you owe nothing — not even for the earnings on your investments, unlike with a traditional IRA. The money is yours, free and clear.
Easier early access to the money
The Roth is equipped with better early withdrawal terms than the traditional IRA. Nonqualified withdrawals from a traditional IRA before age 59½ comes with both a bill from the IRS for income tax on the amount cashed out and a 10 percent early withdrawal penalty. You can avoid both with a Roth as long as the money you withdraw comes from your contributions and not earnings. Fewer ageist withdrawal rules
Money in a traditional IRA is subject to RMDs, or required minimum distributions, which means savers are required to start withdrawing from their accounts at age 70½. The Roth, on the other hand, is RMD-free: Original account holders are free to let all of their money stay put for as long as they are alive, which means:
Better terms for your heirs
Unlike money left via a traditional IRA or other retirement accounts, such as a 401(k), distributions from an inherited Roth IRA are tax-free. And while non-spouse beneficiaries of a Roth IRA are subject to annual minimum withdrawal requirements, the Roth offers surviving spouses another special perk: no required minimum withdrawals.
