5 Things you need to know about a Roth IRA

Are you interested in opening a Roth IRA? With this type of individual retirement account, you are making contributions with after-tax dollars. While this is not the right choice for everybody, with some opting for a traditional IRA instead, there are many benefits to consider.

Here are five things you need to know about a Roth IRA:

1. Contributions are not tax deductible. This is in contrast to a traditional IRA in which your contributions may be tax deductible, helping you save money at the present time.

2. Earnings can grow tax free. For many, this is the number one benefit of investing in a Roth IRA. With a traditional IRA, earnings will grow tax deferred.

3. After you reach the age of 59 1/2 , as long as the account has been open at least five years, all earnings are tax and penalty free. Once you reach retirement age, being able to earn in a tax and penalty free environment is a huge benefit.

4. Many ways to fund your account. You can fund your Roth IRA through all of the following methods: money you have earned, by converting a traditional IRA to a Roth, by rolling over a 401(k), and through the transfer of an IRA.

5. There are many investment options within a Roth IRA. The most common include money market funds, CD’s, ETFs, bonds, stocks, and mutual funds. With all these options, you can choose the risk profile that is best for you.

With so many benefits of opening a Roth IRA, this is something to consider as you plan for retirement. It may not be the right decision for you at this time, but knowing the benefits will help you determine if it is something you could use to your advantage in the future.