What Is A Roth IRA?

What Is A Roth IRA?

This type of account has contribution limits (under the 2010 rules, you could invest $5K/year if you are 49 or younger, and $6K/year if you are 50 or over). This type of account also has income limits, so you should check to see if you make too much money to qualify (2010 limits ranged between $105K – $120K for single filers, and between $167K – 177K for joint filers, meaning that if you made less money than the low-end of the range you could invest fully in the account, and if you fall somewhere in the range you may be able to invest a portion of the limits into the account).

There are two main differences between the Roth IRA and the Traditional IRA: The Roth IRA grows Tax-Free, and the contributions are not Tax-Deductible. Tax-Free means is that if your $3,000 contribution grew at 10% for 20 years, you would then have just over $20,000 without ever paying a dime of taxes. You will then not be taxed at all on the income when you withdraw the money during retirement. By not paying taxes throughout your working years, the money accumulates much quicker, and your retirement pot grows more rapidly. By not paying taxes when you withdraw the money, you save an enormous amount of money during retirement. Since the contributions are not Tax Deductible, this means that if you put in $3,000 dollars, you will not be able to write off any tax dollars for the current tax year.

Retirement Junkie is a website that the Hagopian Institute put together as a source for free information to help people prepare for retirement.  Please visit retirementjunkie.com, and follow MrEmergingMedia on Twitter for more retirement tips, along with other fun offerings from Todd Hagopian and the Hagopian Institute.

About Todd Hagopian (@ToddHagopian)

Todd Hagopian received his BA from Eastern Michigan University with a major in Political Science. After graduation, he worked as a Financial Advisor and a Bank Manager before returning to school. He attended Michigan State University, where he completed an MBA with a double-major in Finance and Marketing. Todd is now a Senior Product Development Manager for a Fortune 500 company. He frequently writes about business issues, social media strategy, and political issues that he finds important. Enjoy the blog!

Posted on December 25, 2011, in Investing and tagged , , , , , , , . Bookmark the permalink. Leave a comment.

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