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Spend Your Retirement The Way You’re Meant Too…
The Roth Individual Retirement Account is the exact opposite to a Tradtional IRA so with a Roth you invest with money that has already been taxed, this way all investment gains are completely yours to keep, this works best when your investment has done well, over many years an investment can easily double or even triple, but you only paid tax on the original input meaning you could potentially have huge amounts of un-taxable retirement funds. Sounds good? well on the face of it yes and it can certainly go this smoothly for you, however what you must be aware of is a Roth IRA is not built for the wealthy investor in mind.
Basically there are many issues that sponsored retirement plans such as a 401k or even a 403b or TSP have that a Roth does not. With an IRA the wealthy have been able to invest and grow their capital in a way the rest of the population couldn’t; for example simply self-directing their own accounts or controlling what goes in. This is how a Roth IRA came about, it is built for us common peasants in mind. firstly a Roth account allows you to withdraw funds after 5 years as long as your aged over 59 1/2 as opposed to 70 1/2, for many of us this is when the money is needed, many Americans look to retire from their life long careers but before doing so need to pay off their mortgage, this lower age limit allows you to withdraw for such events.
“Like a traditional IRA, you can put your Roth IRA funds into many different investments so long as your custodian is prepared to follow your guidelines”
It also offers peace of mind in the sense that tax has been taken care of, and what you see in your account is what you will get. There is also a lot more flexibility in a Roth such as you can continue to contribute after the age of 70. One of the most attractive features is you can pass on a Roth to a family member and they can also withdraw tax free, this is absolutely huge and will change the landscape of investing as we know it for middle to lower class citizens. You could argue it levels the playing field between the rich and the poor. With these benefits also come disadvantages, firstly you must be below a certain pay threshold, this is what cements it as a working class investment option, in addition to this their is a maximum amount that can be invested with a Roth, in 2015, that’s $5,500, or $6,500 if you’re age 50 or older.
When is A Roth a bad Idea?
If you invest in something that gains no value over the years then you will have no investment gains, this means your money has just sat their doing nothing, it would have been better sitting in the bank, if however you put the same funds into a Traditional IRA and invested into the same things then at least you wouldn’t have had to pay tax on the funds you invested with meaning you would have more money to start with and have avoided tax.
When is a Roth IRA a Good Idea?
A Roth can really benefit you if your investment gains prove fruitful, this means years of consistent yields, with the right choices can easily be the scenario you find yourself in. All these years of high yields would be acting as un-taxable income meaning your original investment of having to pay say 20% tax could easily turn into yields of 200% or more over 10-20 years depending how young you are when you open the account.
How can a wealthy individual get a Roth IRA?
This is possible with what we call a back-door IRA. It is possible to roll into a Roth IRA with a Traditional IRA. The ideal scenario is you open a Traditional IRA, Invest a large amount of funds (perhaps you have millions to invest) then you can convert this into a Roth, there will obviously be taxes you now have to pay on the funds you have deposited, however before you would never have been allowed to open a Roth IRA, you will also from this point be bound by Roth rules when it comes to maximum deposits etc…. However you now potentially have millions of dollars of investments that could spend the next decade earning yields of say 10% of un-taxable income every year! The best practice is to open a number if Traditional IRA’s then watch how your assets perform, try to then get a forecast of how they will perform and then decide what is worth converting into a Roth and what is not.
What Precious Metal Is best for Roth IRA?
When we answered this question for Traditional IRA our answer was completely different, and the same answer would be one of the worst we could give you. What you want is the metal which will gain the most value over the next 10-20 years. Gold, Palladium and platinum are all very expensive, and to imagine any of these multiplying in value is hard to imagine, perhaps gold may go up another 30%, which is definitely possible and sounds like a good investment, however that is roughly how much tax you may have paid originally meaning you are breaking even, the same is true with Palladium or Platinum. Silver Bullions on the other hand is at a point where its value completely dwarfed, in addition to this it is the most undervalued precious metal on the market. At the time of writing this Silver goes for around $15 per ounce compared with Golds $1300 per ounce. It is not hard to imagine Silver to jump to $30 or even $60 per ounce other a decade or two, that could mean a 400% jump in gains.
What are the Roth IRA Benefits?
- There is no mandatory distribution age, i.e. you can take money out of the Roth IRA any time you need
- The Roth IRA owner will not be taxed on the money that is withdrawn as long as all the rules and regulations that govern it are followed and respected.
However there are also restrictions that apply to Roth IRAs, firstly they are not open to everyone. A single person must make less than $95,000 a year in order to open a Roth, and for a married couple this is a combined income of $150,000.
If you meet the criteria it is likely that that most financial advisers will recommend over the traditional IRA, simply because your tax bill is likely to exceed the savings generated by your tax-deferred contributions.