Roth IRA
Roth IRAs are tax-advantaged retirement accounts designed to encourage individuals to prepare for retirement. All contributions are made with after-tax dollars and grow tax-deferred. Plus, unlike a Traditional IRA, if you are over age 59½, your distributions will be tax-free. Also unlike a Traditional IRA, you can continue making contributions after you reach age 70½. Certain income limitations apply.
Tax-Free Distributions
A Roth IRA offers two tax advantages.
- While contributions into your Roth IRA are not tax deductible, withdrawals and distributions are generally tax-free.
- All investment gains to your IRA account, dividends, or interest, are tax deferred until you make withdrawals. This means that while you are in your accumulation phase, more money will be available to benefit from compounded growth.
The chart below compares hypothetical end-of-year values for a Roth IRA investment of $3,000 annually with an investment of $3,000 annually made into a taxable investment account at the beginning of each year. For both accounts, assume a hypothetical growth rate of 8 percent and a 28 percent federal tax rate.
More about the assumptions:
- Your actual tax rate on the withdrawal of gains from a tax-deferred account could be more or less than 28%, depending upon the applicable tax rates that are then in effect, and whether you make your withdrawal in a lump sum or over time. Your effective tax rate on gains from a taxable account could also be more or less than 28%, depending upon you adjusted gross income and the nature of the gains. Currently, qualifying dividend income and long-term gains form a taxable account are taxed at an individual's capital gains rate, which is 15% or lower. Capital gains taxation is not available for gains taken from a tax-deferred account. The differences between the tax-deferred and taxable returns shown in the example would therefore be smaller if (a) your effective federal tax rate on the gains from a taxable account were lower than 28% or (b) your federal tax rate on a withdrawal from a tax-deferred account were greater than 28%.
- The hypothetical 8% investment return is compounded annually and assumes reinvestment of dividends and capital gains
Hypothetical results are for illustrative purposes only and are not intended to represent the past or future performance of any specific securities. Investment return and principal will fluctuate so that shares, when redeemed, may be worth more or less than their original value. Withdrawals made from a Roth IRA that has been in existence for less than five years and where the individual has not attained age 59½ may be subject to ordinary income tax and a 10% penalty.
For more information about First Investors funds when planning your Roth IRA, you may obtain a free prospectus and shareholder manual by contacting your registered representative, writing to the address below, or calling (800) 423-4026. You should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds, and should be read carefully before you invest or send money. An investment in these funds is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
