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Investor's Perspective: Roth IRA Explained

*All of these figures are as of 2019*

For starters, a Roth IRA is a type of individual retirement account that derives its name based on the tax treatment of this investment vehicle. The tax treatment of a Roth IRA allows your investment portfolio to grow tax-free as well as make withdrawals tax-free during retirement. You can withdraw your money at any time if you have owned your account for at least 5 years and your age is 59 1/2 or older.

Unlike a Traditional IRA, a Roth IRA allows you to make contributions beyond the age of 70 1/2. You can contribute funds to your account for as long as you want to with qualifying income.

Roth IRA Restrictions

Keep in mind that a Roth IRA is funded with after-tax dollars, which means that the contributions are not tax-deductible. As of 2019, you can contribute up to $6,000 per year or up to $7,000 per year if you are over the ager of 50. You cannot contribute to a Roth IRA if your annual income is more than $137,000 as a single person. The maximum annual income limit is $203,000 for married couples.

Roth IRA Benefits & Precautions

The clear benefit and attraction of a Roth IRA are that you can make withdrawals during retirement tax-free. Additionally, unlike 401(k)s and Traditional IRAs, there are no required minimum distributions (RMD) with a Roth IRA. This investment vehicle may be a suitable option if you think that taxes will be higher during retirement than they are today.

However, you must be very careful in deciding if you should implement a Roth IRA account into your investment strategy. A Roth IRA may or may not be a suitable fit for you depending on your unique situation.

Due to the tax treatment of a Roth IRA, you need to identify where you are today in terms of net worth, clearly define where you want to go, and then decide on the best plan of action to get there.

Always seek the advice and counsel of your trusted advisor before you proceed with any investment decisions.

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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.

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