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How a Roth IRA can save your retirement – The Motley Fool

Roth IRAs can help fight one of pensioners' greatest fears: to run out of money. Among those currently retired, 37% say they save their savings and investments as one of their biggest fears, according to a recent Transamerica Center for Retirement Studies report.

  Retirement plan notebook with calculator and pen on desk


Not only are people already retired who are afflicted, either: 55% of Baby Boomers (born between 1946 and 1964) and 57% of respondents who are part of Generation X (born between 1[ads1]965 and 1978) reckon Also, running out of money as a major pensioner, according to a previous study by the Transamerica Center for Retirement Studies.

Spending sleepless nights worrying about retirement savings falling to $ 0 is no fun, no matter what your age is. But there is a pension fund ready to go to rescue: The Roth Individual Retirement Account (IRA). Let's examine how this sparrow can help seniors save, plan and sleep at night.

1. You do not need to withdraw your money at 70 ½

IRAs come in two types: traditional and Roth. With a traditional IRA, investors need to start taking annual required minimum benefits (RMDs) when they reach age 70½. But a Roth IRA does not have these mandatory RMDs, so you can spend your savings as long as you want and enjoy compound growth. The fact that money doesn't have to get out of your account at a certain time can help pensioners deal with the stress of running out of money.

A Roth IRA provides other benefits for your long-term retirement health care. First, the money can continue to appreciate until you decide to withdraw it. Second, you can take an RMD from a traditional IRA, knock you into a higher tax bracket, or place your earnings across the border where social benefits become taxable. These issues can be particularly concerned with people who continue to work as seniors. But since a Roth IRA does not have RMD, these concerns are relieved.

2. A Roth IRA is tax free when you withdraw money

A major advantage of the Roth IRA is that withdrawals are tax free when you take them because they are not tax deductions in the year you make them. The purpose of the Roth IRA is to stimulate storage for the future, rather than saving on taxes immediately by deducting the contribution amount from your taxable income during the year you set it aside.

This is a great contrast to a traditional IRA, where the money you draw is taxed. Contributions to traditional IRAs are tax deductible, which means that you can deduct the amount of your income for the tax year you contribute, which saves you total taxes and can even get you into a lower tax bracket for that year. But traditional IRA outlets are taxed as regular income when the time for RMDs rolls around.

You can contribute up to $ 6,000 to a Roth IRA this year, as long as you meet the revenue requirements. If you are a qualified saver who is 50 or older, the maximum contribution increases to $ 7,000 thanks to an added benefit called collecting contributions.

Now about the difficult income requirements. Unlike traditional IRAs that are subject only to revenue requirements, if investors also participate in another pension scheme, such as 401 (k), Roth IRAs are always subject to income requirements.

Single filers can only contribute the full amount if adjusted Gross income (AGI) is less than $ 122,000. If your income is $ 137,000 or higher, single filers cannot contribute at all. If their AGI is between $ 122,000 and $ 137,000, they can contribute a reduced amount. Gift filers that file together can only contribute the full amount if they make less than $ 193,000. If they total $ 203,000 or above, they can't contribute at all. Married people with an AGI between $ 193,000 and $ 203,000 can contribute a reduced amount.

3. Roth IRA allows you to plan for retirement costs

Roth IRA not only offers financial benefits. They improve your ability to plan for just the kind of age cases that those who worry about delivering their savings worry about.

Almost all retirees will experience a financial crisis at some point. The pension is long and you get older, so it is natural that health costs are higher than you have been used to in your previous years. Not all health costs will be covered by Medicare, either. As valuable as Medicare coverage is to retire, it will not pay for claims like long-term care, you should end up needing it. Older people may consider keeping a Roth IRA in reserve for a potential medical emergency, especially if they are worried about clearing their savings when they go into some exorbitant and unexpected costs.

Another thing to plan for is to age yourself. Of the respondents in the Transamerica Center for the Retirement Studies survey, more than half of current retirees said they could not plan the age they would live to – but among those who were able to estimate their personal life expectancy, the median age is the one they want to live on. is 90. Life expectancy in the US has risen on average since at least the 1980s. Because a Roth IRA can be set aside indefinitely, it can provide a safety net for the later, and often more expensive, retirement stages.

And about later stages of retirement: You can continue to contribute to a Roth IRA while you are retired! If you continue to work in the past years of retirement, you can make Roth IRA contributions increase your finances in recent years when you are fully retired from the workforce.

Finally, Roth IRA funds can be passed on your heirs tax-free. If you plan to leave your remaining money for your family, as a child or grandchild, they will not be taxed on the amount if it comes from a Roth IRA.

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