Thursday, March 27, 2008

Saving is Investing? So what is a Roth IRA

I've pondered this question before if saving money is actually a way of investing. You can look it both ways. Some people believe if your really investing there is risk but when you save there shouldn't be risk. That brings me to the Roth IRA, if you don't know what it is your missing out on the best investment of your life. A Roth IRA is a retirement savings accountant, the basics is this.


1. You are taxed for the amount you put in but not taxed when you withdrawn you Roth IRA account.

2. You can invest your ROTH IRA money in stocks, real estate, mutual funds, or savings accounts like a CD. You will not be taxed on the money on withdraw at starting at 59 1/2.

3. You can deposit up to $5000 as of 2008, it was $4000 before 2008.

4. You can deposit the money in the account and watch it grow even if you hit the ceiling at a later date.
a. Lets say at 25 years old you are not making $101,000 ( which most of us are not making), and you start depositing in your Roth IRA the full amount of $5000 dollars a year for five years. On the fifth year you make more then the maximum and ineligible to deposit anymore money in your Roth IRA account. Your Roth account will still grow, and when you take it out at 60 years of age, you will have $481,000 dollars tax free from your five year of deposit when you were 25 years old. That’s a great return on your money. Here is a basic calculator for your Roth IRA account(make sure you put zero for the taxes).

5. You can take money out to buy your first home, tax free up to $10,000.

6. You can also take out money to fund your children education tax free.


1. you cannot deposit more then you make, lets say you made $3000 during the year on side jobs. You cannot deposit $5000 dollars in your Roth IRA.

2. There is a ceiling for the amount of money you make as well. If you make more then $101,000 dollars a year you are not eligible. Unless you file jointly that ceiling is $159,000 if you file with your spouse.

So whether you think the Roth IRA is a savings or a investment, the benefits definitely out weigh your drawbacks. Here is a great article to learn more about the Roth IRA, and how to open a Roth IRA.


Manpreet Singh said...

Ya very insightful article. Thanks for sharing

Zero to Millions said...

thanks for stopping by come read up again.