Some of you might already have one for retirement or this might be brand new to you. Roth IRA is a very powerful tool because it is funded with taxed money, or in terms of retirement account, it will be pre-taxed money. Using a Roth IRA can be very useful when trading stocks because of its tax advantages. When using your Roth IRA for stocks, you can earn money and not have to worry about being taxed. I use dividend stocks and what that means is those stocks pay me to own them. The money I earn while owning those stocks will not be taxed. I can keep reinvesting that money back into more stocks. There are some rules to a Roth IRA and I will explain that a little further.
Here are some benefits.
1. Currently, you can contribute a max of $6500 annual contribution for 2023 ($7,500 if age 50 or older). You will not be able to withdraw any earnings from your account until retirement age of 59 ½ or later. In addition, you must own the account for at least five years. However, you can withdraw any contribution you made tax free, just not any profits. For example, if you deposit $500 in February and want to take out $500 in March, you can do that since it is money you contributed. Now, if your account grows to $600 and you take out $600, you will be taxed on the $100 extra.
2. You can actively trade in a Roth account. You can buy and sell inside the account and it is perfectly legal. You can use any dividends or capital gains to buy more stocks or reinvest in your current ones and you will not be taxed on it. The IRS currently does not have any rules on this.
Before actively trading or opening an account, I would do your own research to see if this is a good fit for you. When it comes to your retirement and stock trading, research is key.