Tax-free income from a Roth IRA should be a part of investment management retirement planning. Compounding earnings and tax advantages build wealth in IRAs; and the Roth IRA is one of the best retirement planning investment vehicles.

Unlike a Traditional IRA, money taken from a Roth IRA is not subject o taxes and doesn’t count in determining whether any of your Social Security benefits will be taxable.  As long as you have had your Roth IRA for five years and are at least 59 ½ years old, all distributions are tax-free. In contrast, distributions from traditional IRAs are taxable and vulnerable to future increase in tax rates.

Most people don’t think of diversification in terms of the two kinds of IRAs; but having both taxable and non-taxable retirement accounts gives investors flexibility in retirement. There are major benefits to owning both Traditional and Roth IRAs. Owning both allows distributions from the Traditional IRA when your income and tax rates are low and from the Roth IRA when tax-free income is desired.

Money Management Tip: Consider a Roth IRA for college savings!

Additional Reading:

Who Should Convert to a Roth IRA?

Who Should NOT Convert to a Roth IRA?