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Roth Individual Retirement Account

As a tax-efficient individual retirement account, a Roth IRA can be a great way to save for your future. While traditional IRAs require up-front tax reduction, any qualified distributions from Roth IRAs are tax-free. This can mean year after year of compound growth for your money. While a Roth IRA is a great way to save for retirement, the real question is whether it's the best savings option for you. Before you decide on a Roth IRA, consider your current tax bracket, as well as your projected tax bracket at the time of retirement. This type of IRA actually makes more sense if you expect your tax rate to increase between now and the moment you retire.

Many young workers just starting out in the workforce choose this savings plan because they can watch their after-tax dollars grow for decades and look forward to tax-free withdrawals. With a Roth IRA, once you hit retirement you are not required to take annual distributions from your account. This allows more flexibility with your money during the retirement years and also minimizes the taxes taken out of any assets you want to leave to heirs. Plus, depending on the account specifications, a Roth IRA can also make it easier to access your money before retirement.

Elements of a Roth IRA include:

  • The ability to make non-deductible contributions of up to $5,500 for tax year 2016 ($6,500 for individuals age 50 and older).
  • You can continue to make Roth IRA contributions even after age 70½, provided you have earned income. 
  • Qualified distributions are tax-free and IRS penalty-free for qualifying first-time homebuyers and individuals over age 59½.  
  • You are not required to take distributions from your Roth IRA during your lifetime.  
  • After the death of the IRA holder, specific death distribution rules apply.
  • Funds from a Traditional IRA can be converted or rolled over to a Roth IRA without paying IRS 10% penalty.  The amount withdrawn from the Traditional IRA for conversion or rollover to Roth IRA is treated taxable income.
  • A distribution is qualified if it is paid after five years from your first Roth IRA contribution or conversion.
  • And it is paid:
    • After attaining age 591/2
    • Due to disability
    • Due to death
    • First home purchase

Contact Columbia Bank to discuss the benefits of setting up a Roth IRA with one of our representatives. We'll help you grow your nest egg while you plan for a financially successful future.