How does a Roth IRA work?

Question

How does a Roth IRA work?

Answer 1

I have 401k and when i quit the company i invested in I can roll it over so it keeps building and you can chose risk levels as well

Answer 2

Roth IRA is a bit different from a Traditional IRA.  With a Roth IRA, you cannot deduct that money from your taxes during the year you contributed as you could with a Traditional IRA, BUT your money grows tax free as long as you leave it in a Roth IRA until 59.5 years of age (similar to Traditional IRA).

The best feature of the Roth IRA is that the distributions (withdrawals) are free of federal tax after you turn 59.5 years of age.  With a Traditional IRA, that income would be treated as ordinary income (and taxed at whatever tax bracket you are in) when you eventually take distributions of it.

Answer 3

Step 1: you earn income

Step 2: you pay tax on that income

Step 3: you put money into the IRA and invest it

Step 4: you wait

Step 5: you turn 59.5 years old, and can start withdrawing money from your IRA tax-free.

Answer 4

A ROTH IRA is an investment " vehicle"...a place to put /save your money for the future. It has one major attraction: you do not have to pay income tax on all the money it makes when you finally start to withdraw.

The drawback ( compared to a " traditional IRA ) is that you do not get to deduct your contributions from your " adjusted gross income" in your yearly tax form, meaning that you get no tax - break as you go along.  Do you follow so far ?

If you really, really get " hammered" every year in the income tax department... never a refund, always paying a lot...well then maybe a traditional IRA is better for you. BUT...BUT...in most cases I have seen...people can usually get along at tax- time every year..pretty close to " even".  

So, in my opinion, the ROTH is a much better way to go...think of it...it will be invested and making gains for 20 to 35 years...WHATEVER it makes is YOURS... YOURS... to decide what you want to do with it...You do not have to give 20 percent , 15 percent or ANYTHING to the goverment ( politicians, who use your hard- earned money to create programs to "buy votes ")

After you open a ROTH, you should get more informed on investing , mutual funds, stocks, etc. ..to increase your yearly returns...properly done, you can make an astounding nest-egg for yourself .

AN example: if you could contribute the maximum , $6000. every year for 30 years ...and get 10 percent returns...you would have over a million dollars ... and if you were a little aggressive, a little lucky, a little informed, and got just 3 percent more ( 13 percent) over those 30 years...you would be at 1.9 million !!

...and just to be overly repetitive...TAX- FREE...

Good luck.

P.S. You can open one on- line at Fidelity, E*trade, Scottrade, etc... it's not hard, not complicated, not just for " financial geeks or dweebs"...it is the best plan two Senators ever came up with for taking care of the people in this country.  Gee.. having people save their own money to take care of their own future...give 'em a break and maybe they'll do it...instead of hoping that Soc Sec will take care of them. ( ..and we all know about how Soc Sec is gonna work, right ?)