Understanding Roth Retirement AccountsJul 13, 2015 The best way to understand a Roth IRA is to compare it to a traditional IRA.
Deductibility: contributions to a Roth IRA are not deductible while contributions to a traditional IRA are tax deductible.
Tax on Withdrawals: withdrawals from a Roth IRA in existence for at least five years by a participant age 59½ or older are entirely tax-exempt while withdrawals from a traditional IRA are taxable.
Minimum Distributions: a Roth account is not subject to a minimum distribution at 70½ while a traditional IRA requires minimum distributions no later than age 70½.
The upshot from the these rules is that for persons who anticipate being in a higher tax bracket when they take distributions as opposed to when they contributed may benefit from a Roth IRA. In addition, because of the no minimum distribution requirement, a Roth IRA can grow in a tax sheltered account until death. A spouse beneficiary may either roll decedent’s Roth IRA into her own Roth IRA or treat the decedent’s IRA as her own. In either case, the spouse need not make any withdrawals. Non-spouse beneficiaries are required to take minimum distributions from an inherited Roth account over their lifetime.
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