Last week's Money Monday, we talked about Mutual Funds. This week I was going to talk a little bit about Roth IRAs. My husband and I both have Roth IRAs and he also has a 401K. We don't contribute to the Roths now, but we hope to do more of that in the future. First of all, if you want to read up on what a Roth IRA is you can go here.
Simply stated, a Roth IRA is an individual retirement account that you contribute to with money that has ALREADY been taxed. So, when you withdraw this money starting at age 59 1/2, you will NOT have to pay taxes on it.
Again, I am not a licensed broker, this is just working knowledge of a Roth IRA. If you would like to read even more about this, please visit Dave Ramsey's Roth IRA 101.
Trust me, don't use your Roth as a savings account where you think you can withdraw money here and there. Use it as it is intended as a retirement account. Try not to touch it until you are ready to retire.
Again, you would do much better if you set your IRA up at a financial institution rather than a bank because you have MANY more choices at a financial institution. There usually is a small fee (around $40.00 or so) for IRA maintenance at a financial institution so don't be surprised by that. You can choose several mutual funds or stocks to put into your IRA.
Roth's are great because they do grow tax free. Once catch is that you can't take a tax deduction for Roth's (unless you don't make very much), but remember you don't have to pay ANY taxes when you withdraw after age 59 1/2. You also have to have an earned income to open one or your spouse has to have an earned income.
Here is a calculator you can play around with. There are many more out there on the web.
How about you - do you have a Roth or a regular IRA? Remember even if you have a 401k, once you have maxed that out to the matching contribution it is a good idea to put some money into a Roth, even if it is $50.00 a month into a mutual fund - can you say Dollar Cost Averaging?
Picture from shareselect.com.