Investing a portion of your savings for retirement is one of the most important things you can to secure your financial future. The problem is that there are literally hundreds, if not thousands, of opportunities in which an individual can ‘invest’ for their future. Our personal favorite is the Roth IRA.
What is a Roth IRA?
Individual retirement accounts (IRAs) are common investment vehicles that are used for retirement savings. IRAs can be broken down into two basic forms; Traditional IRAs and Roth IRAs. While both of these accounts fall under the same general label, there are a few significant differences that an investor should understand before finalizing their investment decision.
Roth IRAs were created approximately 15 years ago by Congress via the passage of the Taxpayer Relief Act of 1997. They were, for all intents and purposes, treated similar to traditional IRAs except where specifically indicated by the IRS tax code.
For example, individuals are not generally permitted to contribute more than $5,000 to their Roth IRA in any given tax year. Additionally, any income earned on the funds held in a Roth IRA are not taxable (which a few notable exceptions to be discussed in subsequent posts).