3 Facts About IRAs Every Retiree Should Know
IRAs have helped millions of Americans set manage trillions of dollars in retirement savings. Smart taxpayers take full advantage of IRAs during their careers in order to maximize their savings and reap the valuable benefit of tax deferral and either up-front deductions for traditional IRA contributions or tax-free withdrawals from Roth IRAs. Yet in order to make sure you get the most out of your IRA, there are a few facts about these retirement accounts you need to know. By keeping the following three things in mind, you'll better understand the true power of your IRA and what you need to do to make sure it works as hard as it can for you.
Congress knew when it enacted the laws that created IRAs that some taxpayers would want to take advantage of their tax advantages for as long as they possibly could. That's why the rules for traditional IRAs included provisions that forced retirement savers to start taking withdrawals from their accounts after they retired. Required minimum distributions from traditional IRAs must begin the year you reach age 70 1/2, and the amount you have to withdraw is calculated based on the value of the IRA and your life expectancy as calculated using IRS tables. Fail to do so, and you'll owe the IRS a whopping 50% penalty on what you should have taken out.
Roth IRAs, however, have no RMD provisions. Lawmakers were less worried about Roth IRAs because they used after-tax money, and withdrawals in retirement generate no tax revenue for the government. Those who prefer to control when they will take money out of their IRAs should look closely at Roths in order to avoid having to deal with required minimum distribution rules.
Source: Fool.com