What is a Roth IRA?

We all get old. That’s reality. And we can’t work forever. Thus, the day an individual joins the workforce, he or she should be thinking about eventual retirement. Working on a retirement plan while you’re young makes it much easier to retire comfortably than trying to establish a retirement plan later in life. In fact, many people that are close to retirement are realizing (too late) that they will not be able to live on their upcoming retirement income, and they will have to work part-time to make ends meet.

One option for retirement planning is an IRA. This stands for Individual Retirement Account. These types of accounts exist for individuals to setup their own retirement vehicle. They are relatively easy to setup and begin making deposits on a yearly basis. However, each type of IRA has its own unique rules for deposits and withdrawals in regards to when the money is taxed.

A Roth IRA has many benefits, one of them being that the account holder can choose where he or she would like the money to be invested. Do you favor stocks? No problem! Your account can be invested into stocks. Do you prefer bonds? Mutual funds? No problem! With a Roth IRA, the investor can specifically designate where he or s he would like the money invested.

There are restrictions for opening a Roth IRA, and one of them is your income level. Single individuals making over $105,000 cannot open a Roth IRA, nor can those who are married and earn over $167,000 per year. Currently, the maximum contribution to a Roth IRA is $5,000 per person, per year. If you are over 50 years old, that limit is increased to $6,000 per year. Please note: rules and regulations relating to investment accounts can (and do) change on a yearly basis; you must contact an authorized, licensed agent within your state to get the most current, up to date information relating to Roth IRAs (or any investment account). Do not rely on information you find online to make financial decisions! Often times, information found on websites is outdated or misleading – always seek professional guidance from a licensed individual in your state.

A Roth IRA is one vehicle for tax free growth. It can provide a nice nest egg when it comes to retirement because its earnings will not be taxed when you withdraw them anytime after you reach 59.5 years of age. Let’s say you start an account with $50,000 and 20 years later it’s worth $400,000. Guess what? The money you withdraw is tax free money! Because the money is taxed when you first open the account, the money is non-taxable at a later date when you withdraw it.

Another benefit of this type of IRA is that you can have a Roth IRA at the same time you have a traditional IRA.
The information on this page should not be used to make financial decisions. You should always consult with a licensed professional within your state before making financial decisions of any sort.