The news continues to be dominated by Greece’s possible bankruptcy and the question of whether it will stay in the European Union. In the midst of their struggle we’ve learned, once again, that when a country is fighting for financial survival, taxes go up, and the ability of those in retirement to make ends meet can be compromised. The Bible encourages us to save. Proverbs 21:20 says, “The wise man [and woman] saves for the future, the foolish one spends whatever he gets” (TLB).
Our country’s most popular retirement options are the 401(k), traditional IRA and Roth IRA. I recommend contributing to a 401(k) up to the amount of your employer’s match because it is free money, but not one penny more because of the five advantages of the Roth IRA.
- Although contributions to a Roth are not tax deductible, it grows tax free and after age 59½, anything you take out of it is tax free. This is a huge benefit when you are in retirement!
- If you are married, each year you and your spouse can both contribute $5,500 of earned income to your individual Roth’s regardless of who earned the money. The amount you can contribute annually is increased to $6,500 once you reach age 50.
- If you are experiencing a financial emergency, you can take out what you’ve contributed to a Roth penalty free and income tax free.
- Unlike a 401(k) or traditional IRA, when you reach age 70½ you are not subject to the taxable Required Minimum Distribution (RMD). In other words, you can choose to leave the assets in your Roth where they grow tax free.
- A Roth generally has the most favorable tax treatment when you pass your estate to your heirs.
The good news is that it is easy to open a Roth IRA. Most banks and online brokers can help you.