4 Reasons Educators Need a Roth IRA

4 Reasons Educators Need a Roth IRA

So you’ve worked hard your whole career, ensuring that you save money for retirement.

But are you using the best retirement savings account to grow your nest egg?

There are many options in which you can save your money, but when you retire, you want to withdraw your money with as few penalties as possible. You worked hard for your savings, and you shouldn’t be paying out hundreds of thousands of dollars on taxes just to use it.  With Roth IRAs, as long as you are 59 ½ years old, you can withdraw your money tax-free.

Roth IRAs are similar to traditional IRAs, with a few exceptions. The significant differences between a traditional IRA and Roth IRA are when you make contributions to a Roth IRA, it is NOT tax-deductible. They are tax-free, as long as you are at least 59 ½ years old.

Roth IRAs may seem confusing at first, and they are unusual, but they are probably the most versatile retirement plan available. Even if you are actively participating in your school district’s retirement plan, there are many reasons why you need a Roth IRA.

Consider Roth IRA’s as a way to ‘spice up’ and expand your retirement portfolio! 

Once you learn the many advantages of a ROTH IRA, you’ll want to get started right away. Below we’ve covered some of the reasons why educators need a Roth IRA.

1. Increases the Amount of Your Retirement Nest Egg

Owning a 403b plan is an excellent choice for a long-term savings plan, and it’s perfect for retirement. It gives investors greater control over their long-term savings and investments. But if you’re like most people, most of your retirement money is tied up in your 403b, causing your money to be out of reach.

403b plans tend to limit your access to your money, and virtually no employer-sponsored plans allow you to make withdrawals before your retirement. If you have a generous-size emergency fund, you can often mitigate this problem. But if you have a short-term emergency, you cannot access your retirement savings. 

With Roth IRA, you have greater control over your retirement savings accounts.

A Roth IRA will give you direct access to your retirement funds when you need them. No, you don’t have to go through withdrawal penalties. As the rightful owner of your account and the manager of your retirement investments, you should be able to access your accounts anytime you want.

This leads us to our next reason why you need a Roth IRA in Number 2…

2. Establish Income Tax Diversity in Retirement

With a Roth IRA, you have more investment options and tax advantages. Withdrawing from your Roth IRA is more straightforward than other retirement savings accounts. It gives you the flexibility to lower your tax liability while in retirement, providing retirees with tax diversification.

Roth IRAs will provide you with an income source in retirement that WILL NOT increase your taxable liability. Otherwise, it can serve as a source of tax-free income during your many years of retirement. For instance, you can decide to withdraw from your Roth IRA and forgo withdrawing from your 403b or 40k plan.

3. Provides Tax-Free Withdrawals

Contributions to a Roth IRA can be withdrawn at any time, without penalties or being subject to income tax. It makes Roth contributions very attractive and the perfect source of income for educators who are in or nearing retirement. [Something to think about..]

Under IRS ordering rules for Roth IRA withdrawals, making withdrawals from your Roth IRA, the first funds you receive are your contributions. It is a rule unique to Roth IRAs. 

For example, let’s say you have $20,000 in a Roth IRA. $10,000 represents your contributions, and $10,000 represents your investment earnings. Then you decide to withdraw $5,000 from the plan.

The $5,00 you withdrew is less than your $10,000 contribution, so you can withdraw without creating a tax penalty.

The Roth IRA is the only retirement savings account where this is possible.

Indeed, taking early withdrawals like this example is not something that you want to do regularly… But it’s good to be aware the option exists.

4. You Can Readily Do a Roth IRA Conversion

Roth IRA conversions allow people to move their retirement money from plans with taxable distributions over to Roth IRA, where they won’t be taxed. 

With a Roth IRA conversion, you can convert your 403b or 401k plan to a Roth IRA. Once you do, the money in the Roth IRA will be available for tax-free withdrawals.

You could convert an otherwise taxable income source into a tax-free source.

Open Your Roth IRA Today!

Now that you have learned what a Roth IRA can do for you, it’s time to open your Roth IRA!

Speak with a Roth IRA expert at National Educational Services to open up your own Roth IRA account.

It’s an excellent way to move your retirement nest egg out of a single basket and into an alternate savings account that will open up an abundance of benefits that other plans can’t provide.

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