When You Want Tax-Free Withdrawals

• Roth IRAs offer tax-free qualified withdrawals from the account. If you expect to pay a high tax rate in retirement, this offers a significant benefit. Both your contributions and your earnings on those contributions come out tax-free. In order to take a qualified distribution, you must have the account open for five tax years and be at least 59 1/2 years old. For example, if you fall in a 34 percent income tax bracket at retirement and take an $8,700 distribution, you would keep the entire amount rather than paying $2,958 in income taxes.
  
  

When You Fall in a Low Tax Bracket

• If you fall in a low income tax bracket for the current year, you should consider contributing to a Roth IRA because the tax deduction for contributing to a traditional IRA will not save you much money on your income tax return. For example, if you fall in the 10 percent tax bracket, a $3,000 contribution to a traditional IRA would save you $300 on your current income taxes. Though you would not be able to tax a deduction for a Roth IRA, the tax-free withdrawals would be more beneficial.
  
  

When You Have at Least Five Years

• When you start your Roth IRA, you must wait at least five tax years before you can take a qualified distribution from the account, in addition to being at least 59 1/2 years old. For example, if you are 58 years old and you open your Roth IRA, you would have to wait until you are 63 years old to take qualified distributions. This five-year period counts from the time of your first contribution. For example, if you opened your Roth IRA at age 25, money that you contribute at age 59 could still be taken out at age 59 1/2 as a qualified distribution.
  
  

When You Want to Leave Money in the Account

• Unlike other qualified retirement accounts, the IRS makes Roth IRAs immune to minimum required distributions. Since you do not have to start removing money from the Roth IRA at any age, you can allow it to grow tax-free as long as you live. Not only do you benefit because you can let it grow longer, you can also leave more tax-free money to your beneficiaries after you die.