Help with Roth IRA

[c00face]

Okay so I understand investing my money into the Roth IRA can be more beneficial than putting it in the 401(k) plan. I understand that the money I put in is and has already been taxed which is why it's tax free when I'm at the age to start using that money during retirement. But how is it ALL tax free if the 'growth money' which has not been taxed? If I'm receiving week to week pay checks or month or month from the Roth IRA when I'm age 70, how exactly is it tax free if the growth money has never been taxed (which will be require to be taxed?) I just don't understand this. Hopefully you'll understand what I'm trying to say, I have a hard time wording my thoughts correctly sometimes.

 

Growth money - Money that has been made off of interests or through investment through out the 30 year span I invested in Roth IRA. This money has not been taxed yet, and when I'm at the required age of 60, pulling this money will mean that it would need to be taxed. So how can the Roth IRA claim it's tax free when you are able to access your money?

[Donut417]

On 5/30/2016 at 10:26 PM, Supermangik said:

Okay so I understand investing my money into the Roth IRA can be more beneficial than putting it in the 401(k) plan. I understand that the money I put in is and has already been taxed which is why it's tax free when I'm at the age to start using that money during retirement. But how is it ALL tax free if the 'growth money' which has not been taxed? If I'm receiving week to week pay checks or month or month from the Roth IRA when I'm age 70, how exactly is it tax free if the growth money has never been taxed (which will be require to be taxed?) I just don't understand this. Hopefully you'll understand what I'm trying to say, I have a hard time wording my thoughts correctly sometimes.

 

Growth money - Money that has been made off of interests or through investment through out the 30 year span I invested in Roth IRA. This money has not been taxed yet, and when I'm at the required age of 60, pulling this money will mean that it would need to be taxed. So how can the Roth IRA claim it's tax free when you are able to access your money?

You report your IRA on your Taxes if you live in the States. You should get paper work around tax time which is what you report. Thats how the Government collects its tax. 

[BrianS]

Depends on if your employer matches any contributions you put into your 401k. The 401k could be much more beneficial and you should explore it fully.

 

Plus, IRA's have a limit on how much you can contribute to it every year. ($5,500 if under 50, $6,500 over 50 as a catch-up provision). Roth IRA's also have income limits. 

 

This is the case for the States at least. Where are you located?

[TopDollar]

 

On ‎5‎/‎29‎/‎2016 at 10:26 PM, Supermangik said:

Okay so I understand investing my money into the Roth IRA can be more beneficial than putting it in the 401(k) plan. I understand that the money I put in is and has already been taxed which is why it's tax free when I'm at the age to start using that money during retirement. But how is it ALL tax free if the 'growth money' which has not been taxed? If I'm receiving week to week pay checks or month or month from the Roth IRA when I'm age 70, how exactly is it tax free if the growth money has never been taxed (which will be require to be taxed?) I just don't understand this. Hopefully you'll understand what I'm trying to say, I have a hard time wording my thoughts correctly sometimes.

 

Growth money - Money that has been made off of interests or through investment through out the 30 year span I invested in Roth IRA. This money has not been taxed yet, and when I'm at the required age of 60, pulling this money will mean that it would need to be taxed. So how can the Roth IRA claim it's tax free when you are able to access your money?

This may not be as satisfying of an answer as you are looking for, but the answer is that is how the IRS defines a Roth IRA. Per the IRS's definition of a Roth IRA, you pay taxes now and get the benefit of tax-free withdrawal *IF* five years have passed since January 1st of the year you made your first contribution AND you are 59-1/2 or older, permanently disabled, or deceased. A traditional IRA is taxed on withdrawal regardless.

 

Disadvantages of the Roth IRA include stricter withdrawal requirements and more money comes out of your paycheck since you are paying taxes on them. Less money would come out of your paycheck if you only contribute to a traditional IRA since contributions are not taxed.

 

My personal view on a Roth is that it is reasonable to assume that my tax rate at retirement is going to be much higher than what I am currently paying due to natural tax increases and my overall higher income upon retirement. In addition, I am not hurting for money, so I can afford to make taxed Roth contributions without breaking the bank. My employer also has the option to make contributions to both a traditional account and a Roth account; so I have it set up to have my personal contribution go into the Roth account, and the employer matched contribution go into a traditional account. Your mileage will vary however.