Todays article is a continuation of our Retirement Planning Basics series.

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Planning for a Christian retirement involves good stewardship and seeking wise counsel. It is crucial to fully understand any investment vehicle before getting started, especially when planning for your retirement. This article will cover the basics of the Roth IRA, but be sure to do your due diligence and consider speaking with a financial advisor before making any commitments.

Understanding the Basics

Like many other retirement plans, the Roth IRA is a tax-advantaged, interest-earning account. Unlike the 401(k), there are no employer or government matching fund elements. All money that goes into a Roth IRA comes from your job income. You can deposit into your Roth IRA as long as you are earning money from work activity, regardless of your age.

The primary difference between the IRA and the Roth IRA is that the Roth IRA is not tax-deffered at the time of deposit, you still need to pay taxes on the funds you deposit. However, whereas a you pay your taxes at the time of withdrawal with a traditional IRA, your withdrawals are not taxed with the Roth IRA.

Flexibility and Freedom

On the surface, the Roth IRA might not sound so beneficial, but the structure gives you flexibility and freedom that other accounts don’t offer. Since you have already paid taxes on this money, you can withdraw any amount, any time, for any reason without a penalty as long as you leave all dividends in the account. No fees, no taxes, no hoops to jump through. When God says “Go”, you are ready. This makes the Roth IRA preferable to individuals who are uncomfortable with risking a penalty if they need to access their funds before age 59 1/2.

Quick Facts

• There is no mandatory withdrawal — you can leave the money to heirs; they pay no inheritance tax.
• You can withdraw interest earnings without tax/penalty to purchase your first home (up to $10,000) or if you become disabled.
• You pay taxes, but no penalty, for interest earnings used to pay for secondary education for yourself or family members.
• Accounts must be designated as a Roth IRA when opened.
• Deposits are not tax deductible; you must report interest earnings on annual tax return.

Is A Roth IRA Right For Me?

Though you will want to seek wise counsel as well as prayerfully consider any investment, a Roth IRA is thought to be especially beneficial for young adults who are planning for a Christian retirement. This is because young individuals are likely not at the height of their career, and are likely in a lower tax bracket than someone who is more established. The longer that the account is open, the more compound interest the funds earn. Many people starting their careers who earn less than well-established professionals don’t rely on tax deductions and typically aren’t negatively impacted. Also people in higher-tax brackets appreciate the tax advantages for their heirs.

Though there are limits and exceptions not discussed in this article, the Roth IRA can be a great route to consider if flexibility and access to your money is important to you.