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by S. Wade Hansen
A Roth IRA (individual retirement account) is similar to a traditional IRA, but with one major difference—with a Roth IRA, you pay taxes as your money is going in to and not as it is coming out of your account.  Roth IRAs were created in 1998 by a bill that was introduced by Senator William Roth of Delaware—hence the name Roth IRA. Congress created Roth IRAs to provide individuals with more tax incentives to save for retirement. For instance, if you believe you are going to be in a higher tax bracket when you retire than you are in now, a Roth IRA makes perfect sense because you are taxed on the money you puta into a Roth IRA, not on the money you take out. Roth IRA Basics Roth IRAs are defined by a few basic features. Once you understand these basic concepts, the rest is just details. Here are the important points you need to remember: - You pay taxes on the money you put into your Roth IRA - Your investments grow tax-deferred inside your Roth IRA - You take your money out of your Roth IRA tax free at retirement Roth IRA Details The following table outlines the specific details that make a Roth IRA unique. | Plan Components | Specifications | Tax Treatment (Contributions) | Ordinary Income | Tax Treatment (Withdrawals) | Tax Free | Contribution Limits (per year) | $5,000 | Catch-Up contributions (50 years old or more) | $1,000 | Employer Contributions | N/A | Contribution Deadline | April 15 of the following year | Early Withdrawal Penalty | 10% Penalty | Withdrawal Eligibility Age | 59 1/2 | Minimum Required Distribution Age | N/A | Minimum Required Distribution | N/A | Rollover Options | Rollover Roth IRA | Loans from Your Roth IRA | Not Available | Investment Choices | Depends on Your Broker | More on Investment Accounts - 401(k) Retirement Accounts - IRAs (Individual Retirement Accounts) - Taxable Accounts - Tax Deferral More...
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