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Where To Invest In a Roth IRA and How to Decide?
By Adam D. King Platinum Quality Author
 

Before you decide where to invest in a Roth IRA, there are some personal factors that you should consider. First, the maximum income for a Roth IRA is $150,000 per year, per couple. The government changes the maximum frequently, so you should check for changes at the beginning of each tax year.

For a single person, the maximum income for a Roth IRA is $95,000. If your income is higher, you can always open a traditional IRA. There is no income restriction related to a traditional IRA and contributions are tax deductible, but you will pay taxes on any withdrawals.

With a Roth IRA, contributions are not tax deductible, but there is no income tax on qualified distributions. If your income level would allow you to open either type of account, you have to decide whether you want your tax break now or when you retire.

There are a couple of other big differences between the Roth and the traditional IRA. With the traditional account, distributions are mandatory at age 70 ½. With the Roth, the money can stay in the account for as long as you like. You are never required to make withdrawals, but you can take out principal contributions at any time, without penalty.

If you need to withdraw funds from a traditional IRA before the age of 59 ½, you will usually have to pay a 10% penalty. There are a few exceptions, such as a one-time withdrawal for the down payment on your first home, but in most cases, the 10% penalty is applicable. In addition, the funds will be reported to the IRS as income for the year and are subject to income taxes.

Another thing to consider when you are trying to decide where to invest in a Roth IRA is control. If you are familiar with investing, you may be interested in a self-directed account. Many banks and brokers do not offer that option. If you want them to make most of the decisions on your behalf, then you want a standard account.

The other big consideration is the type of investments you would like to make. Whether you choose a Roth or a traditional account, you have many options, but all of them may not be available.

That's another point to consider when deciding where to invest in a Roth IRA. If you want to stick with traditional investment options, like CDs and stocks, then you can open an account just about anywhere. The interest rates that they offer may vary, but not by much.

On the other hand, if you are interested in other options, such as real estate investing, only a few brokerages offer their clients that option. You would need to set up a self-directed account, preferably with an experienced company.

Your accountant can give you the information that you need about what the maximum income for a Roth IRA will be for the next tax year. But, only you can decide where to invest in a Roth IRA or a traditional account. The points above should help you make that decision.

 
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