Disclaimer: I am not a financial advisor, please consult your financial advisor or do your own research
before applying any of my monetary strategies to your own situation.
1) Non-Deductible
Non-deductible means it is NOT subtracted from taxable income. Why is this a good reason to choose a Roth IRA over a Traditional deductible IRA? If you use post-tax money for a ROTH now, you won’t have to pay taxes later on the earnings and taxes always go up.
2) Gains Are Tax Free
The money you originally put into the Roth IRA is called the cost basis. Any money you made from investing your cost basis are called gains. In a Roth IRA, the gains will not be taxed. Let’s say Suzy only puts in $60,000 into her Roth IRA and when she’s ready to take distributions, her Roth IRA has grown to $180,000. She does not have to pay taxes on that $120,000, as long as she meets the requirements to take distributions.
3) Distributions Are Tax Free
Let’s keep going with Suzy’s scenario. She reaches 60 years of age and starts taking distributions from her Roth IRA. Distributions are the withdrawals from the Roth IRA. The distributions she takes would not be taxable income.
4) Beneficiaries Inherit Tax Free
If you inherit a Roth IRA, you will not pay taxes on the portfolio, any distributions will not be taxed as income and the gains will not be taxed. If you inherit a stock portfolio or investment property, you will have to pay taxes on gains when you liquidate the asset.
5) Can Grow 10 More Years
This is the BIGGEST reason to consider a Roth IRA. The Roth IRA that is inherited can currently sit and grow for up to 10 years after the beneficiary inherits it. Making a ROTH a tremendous tool for your estate planning and maintaining generational wealth.