Investing in a ROTH IRA

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With the economy and the inflation the way it is, now a days, we can not relay on social security alone for our future. Some people work for a company or institution that also provides a 401K or 403b, but we still need to differentiate and not put all our eggs in one basket.

What is a Roth IRA? IRA stands for Individual Retirement Account and Roth from William Roth, Delaware Senator who was the chief sponsor of this account. It was established in the late nineties, and it can be invested in securities such as common stocks and mutual funds and certificates of deposits, notes and even real estate.

The next question is who can invest in a Roth IRA. You can contribute to a Roth if you earned an income in-between of $3,000 and $101,000 for a single household, and a maximum earning of $161,000 for a married couple.

The main advantage of a Roth is that once paid the initial taxes, you do not have to pay taxes anymore not even when you can withdraw the amount at the age of 59 and a half and you can still make contributions to your Roth IRA after the age of 70 and a half.. But unlike the traditional Roth it is not tax deductible, but it still means fewer restrictions once you decide to withdraw money. Another great advantage of the Roth IRA is that if you are buying your first home, it lets you take out up to $10,000 penalty free as long as the account has been set up for five years already.

Also you can still contribute to a Roth IRA even if you are investing in a 401K, of course you can still make a contribution to the traditional IRA but then it will not be tax deductible.

Each year the amount of contribution for a Roth IRA grows, and for 2008 it is a maximum amount of $5,000 if you are under the age of 50 and $6,000 if above the age. You do not have to necessarily put the whole amount at one time; you can either write a check or have it withdraw it from your bank automatically each month.

Of course before investing in a Roth IRA, it is best to see the advantages that offer to the individual itself. Each person has different needs at different times. For me, the fact that I do not have to pay taxes after the initial time, it is more significant than a tax deductible contribution.


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