When thinking about your future, it is never too early to starting planning for retirement. A Roth IRA is an affordable way for younger and older working individuals to plan for retirement. But how do you know that you are getting the best results from your Roth IRA Investment? We’ve compiled tips on how to get the most out of your Roth IRA.
Go for the maximum contribution allowed. Currently, the maximum contribution that can be made over the course of a year towards a Roth IRA is $5,500. In order to be eligible to contribute this amount, you must first qualify, which means that you must be employed and have income to be able to make a contribution, and make under a certain amount. Your marital status and tax-filing status (jointly or separately) will determine the income bracket you must fall in to qualify for a full contribution. Partial contributions are available for those who do not qualify for a full contribution.
In recent years, studies have found that 44% of 25 million Roth IRAs that received a maximum contribution in 2012 were owned by adults aged 25 to 29. This goes to show that, more and more, younger working people are thinking about their financial security in retirement.
50+ can contribute more. During the calendar year that you turn 50, you are eligible to contribute an extra $1,000 to your maximum yearly Roth IRA contribution. This benefit is allowed for the year that you turn 50, and for all subsequent years. This is a great way to play “catch up” if you were unable to make a maximum contribution in earlier years, or if you want to contribute a big boost towards your retirement funds.
Make it a habit. Depositing money into your Roth IRA account should be an annual occurrence. Whether you make it a habit to contribute the maximum during your yearly tax season or during your mid-year financial check-up, choose a time that works best for you, and one that you’ll remember. Make sure that contributing to your Roth IRA is a priority.
Track your contributions. Emergencies happen, and if you ever need to withdraw your contributions prior to turning 59 ½ years old, you will only be eligible to withdraw the amount you contributed. If you withdraw before the specified age, you can withdraw only your contributions and not the earning without accruing a penalty. Otherwise, there is a 10% early withdrawal penalty that will be deducted from the total amount in your Roth IRA investment.
Rollover your 401K into a Roth IRA. Just like with traditional IRA accounts, individuals can opt to roll their workplace 401K retirement plan over into a Roth IRA Investment account. When rolling workplace 401K retirement plans over into a Roth IRA, you can also roll over non-Roth 201K funds. The only downside to this option is that you will take an immediate tax hit, the same as a traditional IRA conversion fee.
Planning for the future sounds scary, but with the right knowledge and know-how, it is easier than most people think. We hope that these tips have helped you, and wish you the best of luck in creating a secure, financial plan for you and your family.