What Are the Benefits of a Roth IRA?

5. Pass tax-free money to heirs

Because there are no RMDs while the original account owner is alive, Roth IRAs can also be efficient ways to pass money on to beneficiaries.

As with the original owner, beneficiaries’ withdrawals aren’t taxed. But keep in mind that if a beneficiary inherits your account, they may have to take RMDs.

6. Easy access to your money

Roth IRAs can be more accessible than other retirement funds. If you’re 59 1/2 or older and your first contribution occurred at least 5 years ago, you can make withdrawals from your Roth IRA at any time without penalty.

There are some exceptions that allow you to make a withdrawal penalty-free before this age, such as withdrawing limited amount of money for your first home or after the birth of your first child. If you’re taking money out for these purposes, you may be able to withdraw it penalty-free, though not necessarily tax-free. Whether you pay taxes depends on whether you’re withdrawing your earnings or your original contribution.

7. No minimum income required

While Roth IRAs have maximum income limits for single and married filers (that change depending on whether one or both spouses are covered by a retirement plan at work), you can open a Roth IRA and contribute up to the maximum allowable amount if your income falls below those limits. 

You must make “earned income” to contribute to a Roth IRA. This is income from some form of paid work, either independently or through an employer. If your income falls below the maximum allowable amount for a certain year, you can only contribute an amount equal to your income for that year. 

8. You can have other retirement accounts

You can open a Roth IRA even if you already have a retirement account with your employer or if you already have another IRA.

For employees who’ve opened a 401(k) or other type of retirement account with their employer, a Roth IRA can be a great option to save even more for retirement.

At the same time, remember that Roth IRAs have income limits, and the income limits can change if your employer or your spouse’s employer offers a retirement account.                   

9. Your withdrawals won’t be penalized for certain expenses

While there is a 10% penalty on withdrawing your earnings from a Roth IRA before the age of 59 1/2, you can avoid this penalty if you’re making these withdrawals for certain expenses.

For example, if you’re purchasing your first home, you can withdraw a certain amount of your Roth IRA earnings without penalty (though you may still have to pay taxes). The same goes for some medical expenses, student loan payments and disability expenses. 

10. Roth IRAs are easy to open

Opening a Roth IRA is a simple and straightforward process. As long as you meet the income eligibility requirements, all you have to do is provide the necessary personal documentation and paperwork and follow the steps given by your broker or bank of choice.

Once you’ve done that, you can choose your investments or work with a trusted financial advisor.

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.