If you read a lot of Personal Finance, you’ve probably noticed a similar theme on your favorite websites this morning: they are all talking about Roth IRAs. As dues-paying members of the blogosphere (and three writers who felt you wanted a break from graphs, if only for one day…), we also joined Jeff Rose’s Roth IRA Movement slated for this morning! So, let’s talk about the Roth…
What is the Roth IRA?
The Roth IRA is an individual retirement account in which the main feature is you pay tax on money before you invest it, but don’t pay taxes on the back end when you eventually withdraw in. In essence, any money in a Roth IRA is a bet that your taxes in the future will be more than your taxes today. Here are a few features of the account:
- Put up to $5,000 in your account in 2012 ($6,000 if you are over 50). Generally, this applies to your spouse as well
- Withdraw your contributions at any time
- After your money has seasoned for 5 years you can make certain qualified distributions from the earnings on the account
- Generally, accounts can be opened at banks and brokerage houses and have similar fee schedules and costs to regular accounts
Don’t Take My Word For It…
This is a three writer site, so I polled Bryan and Cameron on what they thought about the Roth IRA. First up, the wordsmith Bryan Sullivan:
“Put your money to work but let it come home for dinner when you need help with the house. For those of us less comfortable parting with our money for 40+ years… you don’t have to break the piggy bank to get your pennies back.”
(I assume he wants us to read that to a beat? Editor’s note: traditionally, IRAs can be tapped at 59.5 years of age)
And Cameron Daniels:
“If you work for a company, taxes are taken out when you receive income. The taxes are paid from revenues that have a sales tax added onto them. When you invest the money or spend the money, taxes are taken out. And, when you finally die, taxes can also be levied. A Roth IRA is one method to avoid taxation of the money you invest. If you believe your marginal tax rate will be higher in retirement than it presently is, a Roth IRA is an absolute must. If you believe they will be lower, I would suggest a traditional IRA AND a Roth IRA. The value proposition is never truly an either/or.”
Need Even More Proof?
Roth IRAs (and IRAs and 401ks in general) have been pretty common topics over the years. Read these posts form the archives, and learn about some reasons we feel Roths are superior to traditional IRAs – including the simple fact that unless your tax rate is 0%, you can actually shield more tax-free money with a Roth type account than with other accounts. Anyway, take a trip through our archives!
The second one explains the rationale behind the ‘shield more money’ statement.
The Roth IRA… Open One Today!
If you qualify, we here at DQYDJ feel you should strongly consider opening a Roth IRA – and do it before April 17, so you can make a 2011 contribution!
Don’t delay; Roth today.