Roth IRA is one of the favorite investment instruments of financial advisers even though they know this is not for everyone. (Yes, not everyone is qualified to open a Roth IRA.) They cannot help but talk a lot about this retirement plan whenever they get a chance. The following secrets explain the ins and outs of this attractive retirement instrument.

  • Money can be withdrawn at any time. Unfortunately, your adviser won’t tell you that, and will just say you can get hold of your money until you reach the age 59 ½. But bear in mind that this is your money and you paid taxes on your Roth IRA contributions. Hence, withdraw if you have to. However, if you take out your money, your earnings will decline drastically.
  • Earnings can be withdrawn without penalty. But under certain conditions. You may withdraw your contributions at any time, but you need not to pay a penalty on your earnings either. Money can be taken out as long as you hold the account for at least five years. Allowed withdrawals include down payment for a house, education expense, and medical cost. These are not subject to penalties or taxes, but other IRS rules may apply. So it is advisable to consult a tax professional before making any withdrawal.
  • Roth IRA is not for everybody. This is not for individuals or married couples making a six-figure salary or more. Contributions vary depending on the filing status and modified adjusted gross income (AGI). For instance, if their modified AGI is higher than $183,000 and they are a married couple filing jointly, Sam and Val cannot avail this retirement plan. Another example: if Dan has a modified AGI of $116,000, he can contribute up to $5,500 in 2015.
  • An individual cannot obtain a tax credit for contributing. If you are married filing jointly, the IRS offers a Savers Credit, a credit on contributions not higher than $4,000 to your Roth IRA. You can receive a credit of 50% of your 2015 contributions if you and your spouse earns less than $36,000; 10% credit for those who make $39,001 to $60,000. This is also applicable to traditional IRA and numerous workplace plans, including 401(k).
  • The government won’t force you to withdraw. Roth IRAs have no Required Minimum Distribution (RMD), provided the account owner is alive, unlike Traditional IRAs where holders need to start withdrawing their money by April 1 of the year following the year they reach 70½ years old.