Roth IRA

A Roth IRA is an individual retirement account (IRA) in the United States that provides tax-free growth. A Roth account may be opened through a variety of investment vehicles such as stock or mutual funds. As with all IRAs, there are specific elegibility and filing status requirements mandated by the U.S. Internal Revenue Service. A Roth IRA's main advantage is its tax structure. Contributions are made post-tax, but the growth is tax free and does not require individuals to pay taxes again on this money. It is commonly believed that the advantage of a Roth IRA over a traditional IRA is its tax-free growth. But in fact, given the same effective pre-tax contribution each year and a constant tax rate, the results are the same. This is because the money that would have been taxed post-growth is effectively taxed pre-growth, and the growth is proportionally less. The real advantage is that the actual contribution limits are the same for a traditional IRA and a Roth IRA, so an individual can contribute more, in pre-tax dollars, to a Roth IRA than to a traditional IRA. Another significant advantage of the Roth IRA is the ability to withdraw contributions at any time without penalty (only your contributions, not any gains). It is named after its chief legislative sponsor, the late U.S. Senator William Roth.

External links

• Open Directory Project: List of IRA explanation websites

Category:Finance Category:Taxation in the United States

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