An IRA is also known as an Individual Retirement Account. There are many different types of these accounts. One in particular that I would like to discuss is the Roth IRA.
In 1997 the Roth IRA was invented to encourage American citizens to plan for retirement on their own rather than simply relying on their 401k from their employer or social security.When individuals plan for their retirement with their own savings and investments, it eases the strain on the social security system. This is why the government has made certain permissions for these types of accounts that benefit you if you use it for retirement planning. What are some of these permissions and how do they work?
Well, the funds contributed to a Roth IRA cannot be deducted from your income for taxes. That's bad right? Not really. You will eventually have to pay taxes on the money you make anyway, so try thinking of this. The max out for both a Roth IRA and a regular IRA in 2008 is $5000 annually (for income below $100,000 annually). So if you maxed both out, the $5000 in the traditional IRA is actually only worth around $4,000 after taxes whereas the Roth IRA would have a full $5000 in it that taxes can't touch.
Once funds have been contributed to the Roth IRA, after five years you are permitted to withdraw any contributions made penalty and tax free. With a traditional IRA you are penalized for any funds withdrawals before age 59 1/2. And regardless of when you pull out the funds you will pay taxes on 100% of it.
This permission for early withdrawal after the five year seasoning period makes it a great source for an emergency fund that everyone needs. So you can save for retirement while simultaneously putting back funds for emergencies like a new roof, or a new car. The allowances for early withdrawal are relatively lax compared to a traditional IRA.
The traditional IRA allows for early withdrawals of funds of certain amounts for very specific reasons. For example you are allowed up to $10,000 of your fund at any time to be used in the purchase of a home. The home buyer must be the owner of the IRA, their spouse or one of their children. Plus the Buyer must not have owned a home in the prior 24 months. The rest of the allowances are pretty complicated like this one and very strict.
The Roth IRA suits me and my circumstances. But each person has their own goals and needs. So to find out which IRA is right for you, talk to a financial consultant about the options. Ask plenty of questions so that you can make an educated decision. - 16089
In 1997 the Roth IRA was invented to encourage American citizens to plan for retirement on their own rather than simply relying on their 401k from their employer or social security.When individuals plan for their retirement with their own savings and investments, it eases the strain on the social security system. This is why the government has made certain permissions for these types of accounts that benefit you if you use it for retirement planning. What are some of these permissions and how do they work?
Well, the funds contributed to a Roth IRA cannot be deducted from your income for taxes. That's bad right? Not really. You will eventually have to pay taxes on the money you make anyway, so try thinking of this. The max out for both a Roth IRA and a regular IRA in 2008 is $5000 annually (for income below $100,000 annually). So if you maxed both out, the $5000 in the traditional IRA is actually only worth around $4,000 after taxes whereas the Roth IRA would have a full $5000 in it that taxes can't touch.
Once funds have been contributed to the Roth IRA, after five years you are permitted to withdraw any contributions made penalty and tax free. With a traditional IRA you are penalized for any funds withdrawals before age 59 1/2. And regardless of when you pull out the funds you will pay taxes on 100% of it.
This permission for early withdrawal after the five year seasoning period makes it a great source for an emergency fund that everyone needs. So you can save for retirement while simultaneously putting back funds for emergencies like a new roof, or a new car. The allowances for early withdrawal are relatively lax compared to a traditional IRA.
The traditional IRA allows for early withdrawals of funds of certain amounts for very specific reasons. For example you are allowed up to $10,000 of your fund at any time to be used in the purchase of a home. The home buyer must be the owner of the IRA, their spouse or one of their children. Plus the Buyer must not have owned a home in the prior 24 months. The rest of the allowances are pretty complicated like this one and very strict.
The Roth IRA suits me and my circumstances. But each person has their own goals and needs. So to find out which IRA is right for you, talk to a financial consultant about the options. Ask plenty of questions so that you can make an educated decision. - 16089
About the Author:
My name is Herbert Castillo and I am planning my retirement at age 21 with a Roth IRA Account Youth is the best possible time to plan for the future because it is so far away.
