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Wednesday, September 3, 2014

79. What is a Roth IRA and how does it work?

Investments accounts are typically overlooked or seen with uncertainty as too complicated today. However, like anything else we should not close the door on something we are unfamiliar with just because we don't understand it. It is my opinion, no retirement investment is quite deserving of admiration like the Roth version of the individual retirement accounts (Roth IRAs).

So the question becomes what is a Roth IRA and how does it work?

Individuals can contribute to a Roth IRA up to $5,500 in 2014. People over 50 can invest an extra $1000 a year to a Roth IRA to catch up on their contributions.

Most financial planners recommend an investment in a Roth IRA. A Roth IRA is a good investment for people of all ages. 

Why are Roth IRA’s deserving of admiration?

*You only pay taxes on your contributions up front and that's it.

*Roth IRA's grow tax free!

*There's no taxes on the earnings on the account!

*And when you withdraw the money there are no taxes either!

*You can also in a pinch withdraw the money you contributed from a Roth IRA. To take out more than just the original contributions, you must be at least 59 1/2 years old and the account must have been opened for at least five years. Exceptions to this age restriction are cases of unreimbursed medical expenses exceeding 10% of adjusted gross income, disability, death, and back taxes.

*If you make too much money there is a back door - People who make a lot of money can make a nondeductible contribution to a traditional IRA and then convert it to a Roth.

*If you don't touch it you can leave your Roth IRA to your beneficiaries since this money grows tax-free.

To me, it's one of the best retirement investments out there.

Do you think you qualify? Depending on what your household income is many people will according to this site about Roth IRAs.

Household income < $181,000 you can contribute the full amount ($5,500 for each spouse).
Household income > $181,000 but < $191,000 reduced amount.
Household income > $191,000 zero.

Interested in opening a Roth IRA? Consider Vanguard or Fidelity as possible options. 

Do you have a Roth IRA? Have you considered getting a Roth IRA? Leave a comment!


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