Smart Young Des Moines Professionals Open Roth IRAs

Aug 29, 2013 4:39:05 PM / by Jason Shaw

young professionals

There's a lot you can do with Roth IRAs and it's better to start one young!


You’ve landed your first real job.  As a smart young professional, you will want to open a Roth IRA as soon as possible, even if you are in also enrolling in your company’s 401(k) plan.  The benefits of the Roth IRA are too good to pass up. Contact our Des Moines office to start taking advantage of this opportunity now.

You can withdraw Roth IRA contributions at any time or age without tax or penalty

Because you are taxed on contributions before they are deposited, your withdrawals are tax-free.  This is especially beneficial when you are making contributions early in your career, a time when you expect your income (and therefore your tax bracket) to be lower than in future years.  This is in contrast to a traditional IRA, which is generally taxed upon withdrawal according to your top tax bracket.

Note that earnings on your contributions are treated differently from your contributions.  Withdrawals of earnings are taxed if they are taken before the account is at least five years old, and there is a penalty for withdrawing earnings before age 59 ½.  The Roth IRA does have a special provision, however, that allows you to withdraw all contributions and up to $10,000 in earnings without tax or penalty to buy your first home, provided the account has been open for at least five years.  Dipping into your retirement to buy a home may not be the best choice, but it is a nice option to have.

A Roth IRA provides a great deal of investment flexibility

With your company’s 401(k), your employer chooses which investment options to offer.  The Roth IRA, on the other hand, allows you to build the portfolio that best suits your needs.  You may choose stocks, bonds, mutual funds, CDs, or even real estate or your own pet investments.  Just make sure your Roth IRA provider offers the options you desire.  If you are a novice investor, it’s best to keep it simple at first.  You can always change investments after you have time to fully research your wide range of options.

You are in control of distributions

A traditional IRA or 401(k) requires you to take minimum annual distributions from the account beginning at age 70 ½.  This is not true of the Roth IRA.  You can leave your money to grow as long as you like.

A Roth IRA allows tax-free distribution to heirs

If you die with money in your account, your heirs can receive tax-free annual or lump-sum distributions just as you would.  If you leave money in a 401(k) or traditional IRA, on the other hand, your heirs will be taxed on withdrawals.

You have a full 16 months to make your annual contribution to a Roth IRA

This is great for procrastinators and for those who open a new account toward the beginning of the year.  Annual contributions are not due until tax day of the following year.  This means that even if you open your account in the first half of April (or forget to make the previous year’s contribution before then), you can still make the maximum allowable contribution for the previous year and the current year.

You’re never too young to open a Roth IRA

As soon as you begin earning income, you can start saving with a Roth IRA.  You can even open one for your child who just got her first job!  Different providers have different minimum contribution requirements, so find one that suits your needs.  Options exist for opening an account with a very low initial investment.

Before you begin the process of opening your Roth IRA, you will want to verify that you are within the established income limits.  For 2023, you may make contributions to a Roth IRA if your income is below $153,000 for single filers or $228,000 for those who are married and filing jointly.  You will also need to determine what your contribution limit is based on your age.  The limit for 2013 is $6,500 for account holders under 50 or $7,500 for those 50 or older.,-Employee/Retirement-Topics-IRA-Contribution-Limits.  If your income is above $218,000 as a married filer or $138,000 as a single filer your contribution limit will be somewhat lower than this.  See the most recent contribution limit here.

The professionals at Boelman Shaw in Des Moines can help you through the process of opening your Roth IRA.  Contact us to discuss investment options, and begin securing your future now.

Tax and accounting services provided through Boelman Shaw & Company, LLC. Advisory services provided through BSC Capital Partners, LLC a state of Iowa registered investment advisor.

Topics: Financial Planning

Written by Jason Shaw