Contributing to a Roth IRA is a smart move that can offer several benefits, and with Tax Day here, now is the perfect time to consider contributing.
No Changes to Your Tax Return
Roth IRA contributions are not tax-deductible, unlike other retirement accounts, such as a traditional IRA or a Health Savings Account (HSA). That means contributing to a Roth IRA won’t affect your tax return for the current year, even if you’ve already filed.
Just make sure that your contributions are coded for the correct tax year – for example, if you’re contributing for the 2022 tax year, make sure they’re designated as such.
Access to Your Contributions
Another advantage of a Roth IRA is that you can access your contributions anytime, for any reason. Unlike an HSA or traditional IRA, you can withdraw the sum of your Roth IRA contributions without penalty or taxes. This can be especially helpful if you need to tap into your emergency fund.
If you withdraw any earnings from your Roth IRA, you may be subject to taxes and penalties if you’re under age 59 1/2 or haven’t had the account open for at least five years. However, all your contributions will come out first, so you can always get your money back if needed.
When you invest in a Roth IRA, you’re not limited to a fixed number of investment options. Instead, you have a lot of investment flexibility and can choose from various options.
Whether you prefer a savings account, individual stocks, or alternative investments like gold bullion or direct real estate, you can generally find a Roth IRA that fits your needs. This flexibility can be a significant advantage when building your retirement portfolio.
Perhaps the most significant advantage of a Roth IRA is that your money can grow to be tax-free for retirement. As long as you’ve had the account for at least five years and are over 59 1/2, any earnings you don’t withdraw will be tax-free.
You can avoid moving into a higher tax bracket by withdrawing tax-free income from your Roth IRA. This can be a significant advantage when it comes to reducing your tax burden in retirement. For example, if you have a taxable income of $80,250 or less as a married couple filing jointly, your income is currently taxed at 12% or less (based on 2023 tables).
The Bottom Line
If you haven’t contributed to a Roth IRA, today is the perfect day to start. By taking advantage of the benefits outlined above, you can build a more robust retirement portfolio and reduce your tax burden in retirement.
Don’t wait any longer – start investing in your future today!