Are you sure that you understand how a Roth Ira operates? The Roth IRA is the best option for retirement investments in a world of retirement savings that are no longer a mystery to anyone from the working class. It’s easy to setup. It is easy to maintain and comes with tax benefits that allow you to increase your retirement savings and build wealth for a long period of time.
What is a Roth Ira?
You may have heard of the Roth IRA, but you might not have had the time to research whether it’s a good choice for you.
Here are some key facts about Roth IRAs that will help you understand how they can grow your wealth over time.
What is a Roth Ira account?
The Roth IRA is a retirement account which allows qualified withdrawals tax-free, provided you meet certain requirements. The Roth IRA was created in 1997, and is named after William Roth – a former Delaware senator.
Traditional IRAs and Roth IRAs have many similarities. The biggest difference is the tax treatment. Contributions to Roth IRAs are not tax deductible. Once you begin withdrawing the money, however, it’s tax-free. The traditional IRA is primarily funded with pretax dollars, and the contributions are tax deductible. You will have to pay taxes on the money you withdraw from your account once you retire.
Roth IRAs are a good option for those who want to save for retirement.
What Can You Put in a Roth Ira?
The current and standard contribution limit is $6000 for both Roth IRA and traditional IRA. The Internal Revenue Service offers a “catch-up” feature. This feature allows you to add an extra $1,000 per year (only if you are 50 or older).
It may not seem like much money but it can have a big impact on the performance of your account over time.
Let’s assume, for example, that a 30-year old donates $6,000 per year until retirement.
If we assume a 7% annual return, the account balance of the investor at 65 years old will be $887.481, without the catch-up contributions.
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