Roth IRA :: An Overview

Have you ever asked yourself the following questions:

What is a Roth IRA? How does a Roth IRA work? What are the Roth IRA rules?

If so you need to stay tuned, as over the next few weeks we will explore Roth IRAs in more depth.

Today we will begin with an overview just to get you started in the right direction.

An IRA, which stands for Individual Retirement Arrangement – although many people refer to it as an Individual Retirement Account as well – is not just about planning for your ultimate retirement in the dim and distant future. It is also about a safe and effective means of attaining financial stability and having a sound fall-back in place, should you need it in a crisis.

And remember, crisis will not wait until your retirement to strike!

If you have been keeping track of previous posts here – such as 7 Steps to Save You Money, 9 Tips to LBYM, How to Trim Your Budget, and The Right Approach to Credit Cards – you are probably on your way to being debt free or perhaps already there!

So the next step is to find a safe haven for your hard earned dollars; your income that has already been taxed – which is where the Roth IRA comes into play. It is true that contributions made to the Roth IRA are not tax-deductible, but that is pretty much the only downside. This is because what you then withdraw (of your contributions only unless it is a qualified distribution) from the account is tax free!

That is the one great plus about the Roth IRA in particular. It is flexible and far less hide-bound than Traditional IRAs.

The Roth IRA, described by many experts as a “gift from Uncle Sam” works like this: You open an account (many banks, credit unions and even mutual fund companies offer you this facility) with any institution that suits your requirements. Be sure to check for eligibility, initial minimum investment etc. as each institution may be different.

Since you have many options as to where you can invest your Roth IRA, such as stocks, bonds, mutual funds, certificates of deposit, or even real estate, you need to choose accordingly. Once you have made your initial contribution to your new Roth IRA, subject to the maximum Roth IRA contribution limits, you are ready to begin investing.

Then you watch your little nest egg grow, providing you with financial stability and a wonderful sense of security!