For the uninitiated, the Roth IRA can be a rather strange creature when it comes to retirement accounts. On the other hand, even the initiated might benefit from a brief refresher on all the perks of the venerable Roth IRA. A recent Kiplinger’s article, titled “Why You Should Open a Roth IRA,” makes the case for understanding this savvy retirement tool. Essentially, the Roth IRA is the inverse of the regular, plain-vanilla IRA. The latter is all about taxation, which is deferred until the time you take distributions voluntarily or involuntarily when you are required to take “Required Minimum Distributions” (RMDs). Conversely, Roth IRAs make you pay the tax upfront, but then let them grow without taxation thereafter. In fact, after this upfront tax on the initial investment, no income taxes will be owed thereafter. Roth IRAs offer a very specific benefit when it comes to estate planning. Clearly, eliminating those pesky RMDs and future income taxation altogether can help you preserve assets for yourself now and your heirs later.
Reference: Kiplinger (September edition, 2013) “Why You Should Open a Roth IRA
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