How Does a Roth IRA Work?

Video Transcript

"Hello, my name is Mark Griffith. This is going to be a very short film introducing the Roth IRA account. How does it work? This is for citizens of the United States, and people who pay taxes in the US. Opening an individual retirement account, which is what IRA stands for, can be an excellent way of enjoying income after you retire. The rules are the following. If you pay into an account that is classed as a Roth IRA account, then after you reach the age of fifty-nine and a half, you can withdraw from the account money without paying tax on it. In other words, you pay money on your way into the account, you pay current tax contributions, but you don't have to pay tax when you take it out again. If you are an individual, then your income must be one hundred and ten thousand dollars a year or less. If you are a couple and you file joint tax returns, you must be jointly one hundred sixty-five thousand dollars or less. And once you've done this, once you've found out that you qualify for this, what you need to do is look for a broker or a bank, or another institution that will manage an account for you, and then you have the usual decisions to make. If you're close to retirement, you might want to go for fairly safe options, low risk, yet low yield, and if you're young, you might want to go for higher risk. High risk, high yield possibilities, since you've got plenty of time for the amounts to settle down. So, it's fairly simple. You need to open a special IRA account with a financial organization. You need to pay in regularly. In other words, the amount of money going in, you must be able to afford that each month. And there are the limits. One hundred and ten thousand for single contributor, and one hundred and sixty-five thousand dollars for a joint contributor, so you're income cannot be above that. And, again, as with any stock portfolio, share portfolio, treasury portfolio, you need to look at mixing high risk, high yield, with low risk, low yield, and deciding on exactly what you want. But this can be an excellent way to make sure that you have a stream of income after you reach the age of fifty-nine and a half, which will not be taxable under American law. Good luck."