How does a ROTH IRA work?

Question

Lets say I want to open one. I go to a bank, open one and within the account, I invest my money in stocks, certificate of deposits, etc and not be taxed on the profit I make? Is that how it works?

Answer 1

You got it. Thats basically how it works. Check out IRS Publication 590 below for more information.

Answer 2

First of all, why a bank for investing in stocks??

1) Banks over charge you for commission ( $ 45.00 buy & $ 45.00 to sell).

2) Banks charge you maintenance fee ( 15 -30 bucks per year).

It's more ideal to open a Roth IRA at a popular brokerage where you can avoid fees and high commissions.

Roth IRA---

There's a thing called the " No penalty IRA" where you tell the IRS how long you expect to live and you can start tapping in by that date with no penalties.

You can also wait until you reach 59 1/2 and you get the money you've earned tax free and withdraw tax free as well.

Roth IRA is a lot more flexible compared to other retirement accounts.

After 5 years you can start tapping into your IRA but limited to money that you've contributed.

Either way, you can't go wrong opening a Roth IRA.

Answer 3

As long as you keep the earnings you make in the ROTH until you are at least 59 1/2 years old, yes that is how it works, no tax need be paid. This is federal tax, your state may want some tax. Plus there are exceptions about taking out earnings before 59 1/2 to buy a first house or medical emergency. I'm not up on those details.