what is a Roth IRA and how do you get one started?

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  • Anonymous
    1 decade ago
    Favorite Answer

    A Roth IRA is an after tax retirement account. It differs from the traditional IRA and the 401K in that those two accounts allow you to save and invest money before you pay taxes on it, whereas with the Roth IRA you save for retirement after you pay taxes on the money you place into the account.

    BUT With a Roth IRA everything you take out of the account when you reach 59 1/2 or after is tax free. With the other two accounts, everything taken out is taxed 100%.

    All three accounts have the benefit that everything in the accounts earns without being taxed while the money is in the accounts. This is a really big advantage. And the really bid advantage of the Roth IRA account is that those earnings are never never taxed.

    Assuming you deposit $4000 a year into a Roth IRA account for 40 years and earn an average of 10% annually, not uncommon with equity mutual funds, at the end of 40 years you will have $2,273,800. All tax free.

    You can invest upto $4000 a year if you are under 50 and make less than $95,000 a year if single. About $110,000 if married.

    To get started you have to first find an administrator/trustee for the account. Stock brokers, banks, insurance companies, and mutual funds will almost all provide that service.

    If you are not an experienced investor, a mutual fund company is an excellent choice. Some are Fidelity, Vanguard, T Rowe Price, and Royce Funds. There are many, many others. If you go to their web sites you fill find the forms to down load.

    On line stock brokers are also a good choice. Fidelity again, Scottrade, TD Ameritrade, E-trade.

    Do not hesitate too long in making up your mind. The deadline for 2006 contribuitions is April 15, 2007.

  • 1 decade ago

    Almost any financial institution can get one started. A bank, a brokerage, just check the yellow pages for financial professionals. The big deal about the Roth IRA is that you can put money into it like a bank account, but you never get a 1099 from the bank to pay tax on the interest, even after you take it out, as long as it's after you have turned age 59 1/2, or for education or buying your first home(upto $10,000) (talk to a CPA or tax expert). The most you can put in this year is $4000 unless you make more than $99,000 this year, in which case it phases out to nothing at $114,000. You can keep it there past age 70 1/2, unlike a regular traditional IRA.

    The big key is not paying taxes on the returns, so you can use your taxed money to double, triple, whatever, and get that tax free later when you just want to live off your investments. You can put the money in the stock market, like mutual funds, or even use it to buy covered calls (advanced investing stuff, but worth looking into in my opinion). A regular bank will probably just put it into money market, but it's a weak investment if you are young and have time for more risk.

  • 1 decade ago

    ROTH IRA is the govt's way of getting you to save for retirement but still pay some of the tax now. You use money from your payckeck (after tax) and let it grow till retirement. When you take the money out, you don't pay any more taxes. (as of now..) As for setting up one, Which state do you live in?

  • 1 decade ago

    Here's the answer to your question:

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