Pay Less Tax Post-Retirement With a Roth IRA

The primary differences between Roth IRA accounts and traditional IRA plans are (1) when tax is due on the money invested and (2) taxation applicable to the interest earned on the funds. Traditional IRA accounts are tax-deferred investments, and Roth IRAs are not.

With a traditional IRA, you can deposit pre-tax money into the account, meaning that instead of paying income tax on the money now, income tax becomes payable only at the time you withdraw funds from the account. These funds are taxed as ordinary income rather than as capital gains. With a Roth IRA, the money you invest goes into the account post-tax. That means that you are investing post-tax money rather than pre-tax money with a Roth account.

With a traditional IRA, all of the interest earned on the account during the years the money is invested is taxed as capital gains as the investor withdraws funds for retirement income. The Roth IRA is tax-exempt investment. With a Roth IRA, however, there are no taxes on the gains for the investor or his or her beneficiaries. This benefit of the Roth IRA accounts can result in a significant benefit in terms of cash flow during the retirement years.

Roth IRAs are not subject to the minimum required distribution rule that applies to traditional IRA accounts. It’s possible for retirees to allow their Roth accounts to continue accruing tax-free interest for as long as they wish.

Roth IRAs are also a good investment for individuals who are thinking about retiring early. It is much easier to withdraw money before reaching the age of 59 1/2 with a Roth account than with a traditional IRA.

As an added advantage to retirees, interest earned on a Roth IRA is not used in the calculation that determines whether or not social security benefits are taxable. Investors who wish to reduce their tax bills post-retirement, rather than enjoying the benefits of a tax-deferred investment today, should definitely consider investing in a Roth IRA.

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What is Your Perfect Retirement Lifestyle?

Many people spend a large part of their adulthoods working and planning for retirement. However, they don't always stop and think about what it is they really want to do during their retirement years. It is, of course, vital to put away enough money that you are able to quit working when you reach retirement age. However, you also need think about what you're going to do with yourself when you are able to reach your goal of retiring.

There are a lot of books and manuals designed to help people figure out how to accomplish their financial goals for retirement. You can even enlist the services of a professional financial consultant to help you figure out how to best budget your money and save for retirement. However, when it comes to figuring out the perfect retirement lifestyle, you are the only one who can make that decision for yourself.

A key to remaining healthy and vital in your retirement years is to stay happy and fulfilled. It's important to spend time thinking about what will really make you happy when you are able to retire long before it's time to plan your retirement party. If you focus too much on the goal of being retired without thinking about what a retirement lifestyle will mean for you, you'll find yourself reaching retirement and not knowing what to do with yourself.

Many retirees want to travel the world in a recreational vehicle or fly from one end of the continent to another. If you want to see the world during your retirement years, it's important to consider your travel plans when setting your financial goals for retirement. It's also important to share your desire to travel with your financial advisor.

Travel might not be your think. You might want to go back to school, start a second career, help raise your grandchildren, learn to grow your own organic garden, or any number of other activities. It's your life, your retirement, and your decision. Give some thought to how you see yourself spending your retirement years, and adjust your retirement planning goals accordingly.