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What are it's benefits? Detriments ("non-benefits"?) How do I get one?

2007-10-09 12:18:23 · 11 answers · asked by Springs 2 in Business & Finance Investing

11 answers

An IRA you pay into with after-tax dollars, in exchange for being able to withdraw tax-free at retirement. GREAT deal.

With traditional IRAs, you pay with pretax dollars (i.e., you aren't taxed on what you deposit) but you pay tax when you withdraw at retirement.

I'd rather pay tax now, let the interest accumulate for years, and get tax-free distrubutions from a Roth.

2007-10-09 12:20:59 · answer #1 · answered by Anonymous · 0 0

A Roth IRA is a retirement account where the money you invest consists of after-tax dollars, but the interest and other earnings are not taxed. You can withdraw the earnings tax-free if you hold the Roth IRA for at least 5 years and are at least 59 and 1/2. If you are younger than 40, and you think your tax bracket in retirement will be at least as high as it is now, a Roth IRA is probably a good idea. If you're 40 or older, you may want to think about a traditional IRA, especially if you think you'll be in a lower tax bracket in retirement. For more details, see the link below.

2007-10-09 19:13:43 · answer #2 · answered by Uncle Leo 5 · 0 0

IRA denotes the individual retirement account and can substitute or complement a 401 K. There are 3 varieties of IRAs available: Roth IRAs, Traditional IRAs and Simple IRAs. Traditional IRAs offer you tax advantages whenever you deposit or add money to your account. On the other hand, a Roth IRA offers you the maximum tax benefit when you withdraw money from your account. A Simple IRA is just like a 401K with lower contribution limit, but cheaper and has lesser paperwork.
http://debts-to-wealth.com/category/Retirement-Planning.html

2007-10-09 16:17:50 · answer #3 · answered by Pitty T 2 · 0 0

A Roth IRA allows you to invest with tax-free benefits, unlike the traditional IRA, which is tax-deferred.

If you qualify for a traditional IRA, you can make contributions and pay no income tax on that money, and all investment income is also tax-deferred. You may begin making withdrawals without tax penalty at age 59 1/2, and you have to start taking money out (if you haven't already) at age 70 1/2. Anything you withdraw is taxed as normal income, but your money as been able to grow untaxed all those years - unlike a cash investment account, where short-term profit is taxed as normal income and long-term profit taxed as capital gains (lower tax rate).

With a Roth IRA, any contributions are made with money that has already been taxed. There is no immediate tax benefit. But, every cent earned in a Roth you will never owe tax on. (f you withdraw earnings prior to age 59 1/2 there may be penalties, but you may withdraw contributions without penalty, since you were already taxed on that money.

If you are covered by a 401K, 403(b) or other qualified plan, you may not be able to contribute to a tax-deferred traditional IRA, but you may still do a Roth. Some financial advisers recommend not having too much tax-deferred money, because if you should be lucky enough to have squirreled away a pile and it earned well, you may just nullify the purpose of the plan in the first place, which was to have income that would be taxed at theoretical lower rates in your golden years. If you're lucky, you may be in the same bracket as when you were working. So, these people advise, it's wise to also put money into a Roth, because that money and whatever it earns will never be taxed.

I say if you're that lucky to still be in a high tax bracket after retirement, count your blessings. You may be taxed, but the $4k a year you put in the Roth is equivalent to putting (at a combined federal and state rate of 30% annualy) roughly $5700 a year into the tax-deferred IRA. Over time, that extra $1700 a year would have earned a substantial pile of money. It will take a long time for the smaller Roth contribution to catch up.

I say, max out your personal pension plan contributions (or traditional IRA, if you aren't covered by one), and if you still have money to invest, definitely do a Roth as well.

You can open a Roth at most banks and credit unions and buy CDs. I recommend getting an account with a discount broker (such as Schwab) and put the money in some good no-load mutual funds.

2007-10-09 12:45:15 · answer #4 · answered by curtisports2 7 · 0 0

A Roth IRA is an Individual Retirement Account that is funded with after tax dollars (same as out of pocket) The maximum contribution to these accounts is $4,000. ($5,000 if over 50) Benefits: tax free withdrawals at retirement (pending you are 59 1/2, owned for it for 5 years, need it for health expenses, or buying first home with down payment no more than $10,000) Can borrow principle anytime.
Non benefits: no tax deduction, 10% early withdrawal fee if not for one of the reasons stated with benefits. (above)
You can get one with just about any investment company and firm. I would suggest T. Rowe Price. They offer target IRAs. Just select your target date and they do the rest. They invest and allocate and shift money over time from aggressive to conservative investments to protect your monety. Low fees too. Also, Fidelity, and Vanguard are good too. Most people my age don't know this kind of stuff. (early 20's)

2007-10-09 13:42:14 · answer #5 · answered by Anonymous · 0 0

A Roth IRA is a retirement savings or investment account which offers you tax priviledges if you follow certain rules. For example, you must not use the money in this account until you are at least 59 1/2. There are other rules but basically what the IRS is saying to you is this: Hey, we would like to help you save for your retirement and give you some wonderful tax breaks but you must make sure the money stays in the account until your retirement. You can't have your cake and eat it. If you want the tax breaks you have to use the money for retirement only. If you use the money before 59 1/2 you will have to pay the IRS taxes and penalities. The best way to get one is to speak to an experienced investment advisor who will not only guide you to the most appropriate one for you but will also stay with you in the years to come and help you along the way. Making sure you are in the right investment is very important. Your happiness in retirement may depend on it. Trying to find an investment on your own or maintaining an investment portfolio on you own may cost you success. Investing for retirement is not a do it yourself project.

2007-10-09 12:36:57 · answer #6 · answered by Richard Jackel 3 · 0 0

Roth IRA Pros
Can invest money in any financial institution
Can invest in individual stocks
Withdrawal of contributions are never taxed
Earnings grow tax-deferred
Tax free withdrawal of earnings prior to age 59-1/2
may be made in case of disability, first-time home purchase and death
Job change doesn't affect account status or require changes
Easy to arrange dollar cost averaging (purchase of
a fixed dollar amount at regular intervals)
No forced withdrawals at age 70 1/2

Roth IRA Cons
Smaller contribution limit
Does not lower taxable income
No matching funds
Not protected from creditors in all states

2007-10-09 12:24:23 · answer #7 · answered by Hoose 3 · 0 0

It is an individual retirement account that is funded by you with after-tax dollars. The proceeds are entirely tax-FREE!

The main benefit is that you pay no income tax on the growth you achieve for all the years you own the fund. That's way better than a traditional IRA, where you get to defer the tax on the money you put into it, but when you cash it in, you pay tax not only on your own contributions, but on the growth as well.

Go to any big mutual fund company website, like troweprice or fidelity or vanguard and read up on it.

2007-10-09 12:25:32 · answer #8 · answered by Carlos R 5 · 0 0

According to Wikipedia:
"A Roth IRA is an individual retirement account (IRA) allowed under the tax law of the United States. Named for its chief legislative sponsor, U.S. Senator William V. Roth Jr. of Delaware, a Roth IRA differs in several significant ways from other IRAs."

Full article at: http://en.wikipedia.org/wiki/Roth_IRA

2007-10-09 12:22:22 · answer #9 · answered by Krakz M 2 · 0 0

This website will answer ALLof your questions.

http://www.fool.com/ira/ira.htm?terms=ira&vstest=search_042607_linkdefault

2007-10-09 12:23:16 · answer #10 · answered by The General 1 · 0 0

fedest.com, questions and answers