Information on Roth IRA
Like traditional IRAs, Roth IRAs provide a tax-advantaged way to save for retirement. However, unlike traditional IRAs, they sacrifice current income in exchange for tax-free withdrawals in the future. Depending on your current situation and future needs, a Roth IRA could be an attractive option.
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Function
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Contributions to a Roth IRA are invested according to your direction, often in stocks, bonds and mutual funds. You may change your investments as often as you like.
Features
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Roth IRA contributions are made on an after-tax basis, however, earnings on investments grow tax-deferred, and any withdrawals in retirement are tax-free. This allows investment growth to never be taxed.
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Benefits
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By paying taxes now, you are ensuring that interest, dividends and capital gains on your investments will never be taxed in the future, so all investment growth remains in your hands.
Considerations
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If you expect to be in a lower tax bracket in retirement, you may wish to take the benefit of the current tax deduction of a traditional IRA in return for paying lower taxes in the future.
Warning
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If you are under age 59 1/2, you could pay taxes and penalties on Roth IRAs, except in specific situations such as disability or purchase of a first home.
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