Photo courtesy of Creative Commons by Steve Buissinn
While our careers may go any number of ways, financial security — as a desire — is universal to all people. Student loans, tuition, housing, scholarships, stipends, checking facilities and so forth: the monetary jargon has already become more than common place in our daily lives, and financial security plays a heavy role in letting people live without stress.
The Roth IRA account is a tool for achieving financial security. An article titled “How Is a Roth IRA different from a regular IRA?” explains the Roth IRA to be structured as an individual retirement account. Money is deposited into the account after the tax for it has been paid, and tax does not have to be paid upon withdrawal of funds while in retirement. This is different from the regular IRA method that allows a person to deduct certain contributions to satisfy their conditions. The regular IRA requires the withdrawer to pay income taxes upon the withdrawn amount. While both IRAs allow funds to mature over the course of time without being hindered by taxes, the Roth IRA allows for upfront payment of taxes without the worry of paying income tax later on.
The article goes on to state that Roth IRAs are flexible in comparison to traditional IRAs. You are allowed to withdraw your contributions into a Roth IRA without any penalties at any time. If you make withdrawals before the age of 59, you will be penalized unless you have a qualifying reason. According to statements available on Internal Revenue service website, the Roth IRA allows the money to mature without requiring periodic withdrawals. The traditional IRA requires compulsory withdrawals called “required minimum distributions” after the age of the 70 and a half. The Roth IRA also allows for contributions to be made at any age.
This is not a tool for the older to get richer, instead, it is most pertinent to the younger people whose salaries and incomes are in the lower brackets. According to Helen Rake — a Certified Financial Planner from St. Augustine, Florida — the Roth IRA holds considerable potential for younger tax payers as they will receive the benefit of decades of untaxed and compounded growth which can be kept as either emergency funds or retirement money. The current financial climate and common sense imposes upon us a strategy to remain financially afloat. The Roth IRA is a simple answer to an issue that can cause very serious problems.
What surprises Rake is the fact that financial literacy is almost non-existent in some cases. Opportunities such as the Roth IRA are not common knowledge among the younger generations, even though they stand to gain the most from it. In lieu with the theme for Financial Literacy this April, Rake suggested that a uniform drive be put together to allow for financial literacy among students and younger workers. Rake went as far as to say that elementary school financial education, at a very basic level, would help tune the minds of the next generation to tackle financial problems given to them by the older generation.
“The problem is that we are not looking out for each other,” said Rake. “We are stuck in this ‘me-me’ mentality while we ignore the ‘us’ route. Our sense of community has failed, but those are more fundamental problems, our small center of influences, which are around us, where we can inform and help a person that satisfies all the requirements of living in a community. Yet we do not even do that. If we concentrated on improving us and our own centers of influences, we would be in a much better position.”
More information can be found on the IRS website. The Roth IRA account can be conveniently opened online in a short amount of time.
