If you’re thinking about opening an individual retirement account (IRA), the first thing you want to look into is the Roth IRA. Although other retirement account types may be right for some people and circumstances, the Roth IRA is an increasingly popular choice that’s suitable across the board. By learning all about this option, you can determine whether it’s something you’d like to consider further or whether you’d like to then investigate such alternatives as the traditional or SIMPLE IRA.
Here’s what you need to know about the Roth IRA:
1. The Roth IRA was initiated in 1997 through the Taxpayer Relief Act, and its chief sponsor was Delaware’s Senator William Roth – which is where it gets its name.
2. Who is eligible to have a Roth IRA is determined by age and income, as well as other minor qualifying details.
3. The primary difference between a traditional IRA and Roth IRA is that the latter’s funds are not taxed when they’re withdrawn, although taxed sums are deposited.
4. The Roth IRA is best for individuals who expect to make more taxable money later in life; young adults, students, freelancers, career startups and entrepreneurs are among those who are most likely to benefit from this arrangement.
5. You can withdraw your deposited money at any time, or within a reasonable set of guidelines, without penalty – unlike other types of retirement accounts.
6. You can only withdraw your earnings once you are over 59.5 years old and have had your account for five years.
7. However, you can withdraw $10,000 of your earnings tax-free to buy your first home.