By Ehab Alalfey
Azzad Investment Advisor
Fresh off a trip to an IRA conference organized by consumer advocate and IRA expert Ed Slott, Azzad’s Ehab Alalfey shares with you five facts about Roth IRAs that you may not know.
Do you have a Roth IRA? Do you know how it’s different from a traditional IRA? There’s much to learn about Roth IRAs, but we’ve got you covered at Azzad. We make it a point to stay on top of trends and changes in the industry. Here are five facts about Roths you might not know:
- You can withdraw your contributions any time–tax and penalty free. This is true regardless of your age and what you intend to do with the money. This only applies to the money you contributed to the account but not to the investment earnings, which causes confusion for many people. So don’t let not knowing if you might need the money later stop you from making a contribution. You can always withdraw it later, no strings attached.
- You are never too old to contribute. Unlike traditional IRAs, which don’t allow contributions after the year you turn 70.5, Roth IRAs allow you to make tax year contributions regardless of age whenever you have earned income and your modified adjusted gross income is below a certain level.
- You can max out both your Roth IRA and your 401(k) at work. Don’t be worried that your participation in an employer plan prevents you from making a Roth IRA contribution–it doesn’t.
- Almost anyone can convert a traditional IRA to a Roth IRA. Unless you’re a traditional IRA beneficiary, almost any taxpayer who owns a traditional IRA can convert it to a Roth. Limitations and restrictions went away back in 2010. But just because you can convert, it doesn’t mean you should. Talk with your Azzad advisor about whether it might make sense for you.
- You never have to take distributions from your Roth IRA. Required minimum distribution (RMD) rules, like those that apply to traditional IRAs, do not apply to Roth IRAs. Your money can grow tax-free for your entire lifetime. Your beneficiaries, however, will have to take RMDs from the inherited Roth IRA, but those distributions will almost always be tax and penalty free.