What Is a Roth IRA and Should You Have One?

If you've decided you need to start preparing for retirement, you may have come across several unfamiliar terms. What is a Roth IRA? A Roth IRA is a tax-advantaged investing account similar to a 401k or a traditional IRA. You need to follow special Roth IRA withdrawal rules, but you will benefit from it in the end.

With a Roth IRA, you contribute money to a mutual fund. The contributions you have made have already been taxed as regular income. You can continue to contribute up to a certain amount to an IRA each year, more if you're married. When you reach 59 1/2 and retire, you can withdraw the money. The money you withdraw will be contributions you made in addition to earnings. You don't have to pay taxes on either one. That means all your earnings you get to keep tax free once you withdraw them.

A Roth IRA is a great addition to any retirement portfolio. If you can get a 401K with an employer match, you should max that out first. With a 401K, you do not have to pay taxes on the contributions now. Instead, you pay taxes when you withdraw it during retirement. This means more money get's to earn capital gains and dividends. If you get an employer match, your employer has agreed to add more money to your 401K as long as you contribute. This is free money you should take advantage of before you start contributing to an IRA or other accounts.

The more you invest now, the more you'll have during retirement. That means you can live a more comfortable and exciting retirement. Start saving and investing now and benefit from it later. You will be glad you did when you're able to enjoy your retirement in the years to come. Invest in a Roth IRA and look forward to the tax-free earnings later.

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