Every investor has a different vision for their retirement. While individual retirement accounts have existed since the 1970s, the Roth IRA, established in 1997, promises tax-free growth and no-penalty withdrawals, making it seemingly ideal for investors wishing to save big money on their post-retirement withdrawals. In spite of their obvious benefits, however, Roth IRAs are not right for everyone. Understanding Roth IRAs

The Pros and Cons of Roth IRAs

When you’re looking at retirement accounts, a Roth IRA appears to be a powerful way to save for retirement. However, there are advantages and disadvantages to using this type of account.

The Advantages of a Roth IRA in California

  • Grow savings tax-free. The biggest benefit of Roth IRAs is that they allow account holders to make withdrawals free from any tax penalties. This benefits investors who expect that their tax rate might be higher in retirement than it was when they were still working.
  • Avoid minimum distributions. While traditional IRAs require that investors begin making regular withdrawals once they turn 72, Roth IRAs have no mandatory minimum distributions.
  • Withdraw their contributions with ease. Traditional IRAs penalize investors who need to withdraw their principal. However, Roth IRAs let account holders take out their contributions whenever they please.

The Disadvantages of a Roth IRA

  • Upfront taxes. The advantage of Roth IRAs is that they let investors eventually make tax-free withdrawals. However, initial Roth IRA contributions are still taxed, which can make Roth IRAs a less-than-ideal option for Californians struggling to save money.
  • Low maximum contributions. Roth and traditional IRAs are both subject to maximum contribution limits of $6,000 per year or $7,000 per year for people 50 or older.
  • Income limitations. Traditional IRAs are open to earners from every income bracket. Roth IRAs, conversely, are subject to an income limitation and phase-out, starting at $124,000 for single taxpayers and $196,000 for married couples filing jointly.

Contact Our CA Attorneys Today

The Law Firm of Kavesh, Minor & Otis, Inc. has decades of experience helping Californians of all backgrounds plan their estates. If you need help figuring out which individual retirement account savings strategy is best for you, send us a message online, or call us at 1-800-756-5596 to schedule your free, no-obligation consultation.

 

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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