Please explain to me like a five yrs old what is ROTH IRA? and why should i invest in it?

Answer 1

It would take forever to explain to a 5 year old, I'm gonna go with a 16 yr old.

You put away no more than $4000 a year in a retirement account, you can put less but you can't put more. This money is already taxed so you can't use it for tax savings, sorry. Take this money and invest in what ever you like; companies, Cd's, mutual funds, ETF's etc......

Ten years have passed your 26 yrs old and you've put in 40,000 dollars in your Roth IRA and its worth 57,000. Now you want to by a 50,000 dollar sports car. Well you can only take out the initial 40,000 you put in because you've already paid taxes on it. The other 17,000 has to stay if you don't want to pay penalties and other taxes on it. I'd advise to leave it in but by then your an adult and you can decide for yourself.

Hopefully if the government hasn't changed any thing by the time you reach 60, 44 years later, if you continued to put in 4000 dollars a year and it grew at a modest average of 6.6% per year you will have 1,000,000 to retire on. When you withdraw from this account to live off of you'll pay no taxes. By the way if you took that money out to buy that car, you'd only have 660,000 dollars. Funny huh.

Answer 2

An IRA is an Individual Retirement Account, it's a plan for saving and investing for retirement that most companies offer. A Roth IRA is a kind of IRA which takes money that has already been taxed and invests it in whatever you want it to. It then grows tax free until retirement since you already paid taxes on it. I like it the best.

You must have income less than $95,000 if your single and less than $150,000 if you're married. This website has more information on them.

http://www.ira.com/

Answer 3

Here ya go.

Roth IRA (funny name huh?) is an account where your money can grow. It grows so you can get lots of fun stuff!

If you put your money in a Roth IRA, the evil taxman will take some of your money now (booooo!), but all the money you make afterwards, you get to keep!

In most other accounts. The taxman not only takes money now, but he comes back every time you make more money and takes some of it!

So which do you prefer? The one where the evil taxman takes your money once, or over and over?

So with a Roth, when you want to use the money many years from now, all the money you put in, plus the money that grew is ALL yours!!!

Isn't that great!