Roth IRA Advantages
Roth IRAs, named after Senator William V. Roth, Jr., were passed into law as part of the Taxpayer Relief Act of 1997. Roth IRAs are special accounts designed to help people save for retirement.
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No Taxes on Earnings in Account
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A Roth IRA is a tax-sheltered account which means that any earnings you have on the money you put into the account is not taxed while the money remains in the account.
No Minimum Required Distributions
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Unlike a traditional IRA there is no age at which you must start withdrawing money from the account. As long as you are alive you can leave the money in your account.
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Tax-Free Withdrawals
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When you reach retirement you can take money out of the account without having to pay any taxes on it.
Early Withdrawal Exceptions
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You can withdraw your money before retirement without penalty in limited circumstances such as if you are permanently disabled or use the money to pay for college tuition or medical expenses exceeding 7.5 percent of your adjusted gross income.
Significance
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The Roth IRA was introduced as an incentive for people to save more money for retirement because at the time it was passed the national average savings rate was zero percent.
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