With ongoing economic uncertainty, Americans are increasingly funding their own retirement accounts. The Individual Retirement Account, or IRA, is one of the most accessible retirement savings vehicles. According to the InvestmentCompanyInstitute, at the end of June 2011, Americans had $4.9 trillion in IRAs, 47 percent of which was invested in mutual funds. Depending on your situation, a Roth IRA mutual fund can be the perfect savings vehicle for you. Here’s what you should know before you make a decision.
Is the Roth IRA Right for You?
A Roth IRA mutual fund is a great idea if you plan on having a large retirement income. A Roth IRA withdrawal has fewer restrictions than a traditional one, providing more flexibility. A Roth IRA distribution can be withdrawn tax-free, making it ideal if your retirement income puts you into a high tax bracket. A Roth IRA is also useful if you already participate in another retirement plan, which can place restrictions on a traditional IRA.
What are the Roth IRA Rules?
Some of the basic Roth IRA rules are:
- Contributions must be earnedincome- meaning you received it from working or from abusiness you own.
- Contribution limits for 2011 are as follows:
● There are no age limits as long as contributors can verify income; even minors are eligible.
Whether investing in a Roth IRA or traditional IRA, a mutualfund can be a good way to maximize investment returns. A mutual fund is a company that pulls investors together to invest in diversified instruments like stocks and bonds. Here’s how to find the best mutual fund:
- Research funds just as you would for any other type of investment. Remember that higherpotential returns can mean higher risks as well.
- Find out fund minimums. Most funds require a minimum investment, but may reduce it for Roth IRA customers.
- Consider funds that are not tax-efficient. Because you won’t be paying taxes on those returns, you can consider funds with capital gains, interest, or dividend distributions.
- When you place your order for the mutual fund, be sure to specify that it is for a Roth IRA.
- Be sure to get a confirmation, which you will need for tax reporting.
Investing in Retirement Funds for Higher Returns
A Roth IRA mutual fund can be a good way to invest retirement funds for higher returns. Before deciding on a Roth IRA, you should make sure that you can benefit from the flexibility and tax-free withdrawals.
According to the rules, up to $5,000 of earned income can be invested yearly. Be sure to follow the income and contribution limits. And finally, when choosing a mutual fund, do your research, and be sure to specify that your investment will be in a Roth IRA when placing your order.