The Roth-Type IRA: A Retirement Backup
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The Roth-Type IRA: A Retirement Backup

A guide to getting started investing in Roth IRAs. Some tips to provide new investors information and encouragement in getting started.
    In today's uncertain times, everyone is looking for a guarantor of their future. The best idea, however, is not to bet your future on one specific source, but on multiple nest eggs which can be drawn upon to contribute toward that happy moment when you will no longer need to work. As we have seen, companies can fall, and their retirement plans can come crashing down with them. Investing in a Roth-type IRA is a surefire way of adding a nest egg to your investment mix.

     What is a Roth IRA? A Roth is a TAXABLE individual retirement account. This is the most unique attribute of a Roth IRA versus other traditional investments: the money you invest (or "contribute") is taxed before it enters the Roth account. At first, as your account is mostly full of money you contributed, the difference sounds merely semantic. As your account grows, however, increasing amounts of it begin to come from earnings. It is important to realize that only the contributions are taxed, not the earnings! So, when you decide to withdraw money from your Roth account and retire with it, you are not taxed. Aside from the large quantity of money which never was taxed, you have also paid your taxes up front. This is important because taxes are not likely to drop, so getting them out of the way early is most beneficial for you.

     How much could I possibly earn from my Roth IRA? Let's say you were in college for the first four or five years after high school, and you were unable to sock any money away. So, you are now 23 with a full time job, and you want to put some of your money in an IRA. If you put half of the maximum contribution (currently $5000 a year until 50, then $6000 until 60 with some differences for income) away until age 60, and you expect to earn a conservative rate of 4%, you will have $218,669 by the age of 60. Over this period of time, you contributed $97,500, and earned $121,169, more than doubling your money! The sooner you begin investing and the more you invest, the bigger a nest egg that you can maintain. This year's maximum contribution for the Roth IRA is $5000 (fiscal year 2010).

     One final advantage of the Roth-type IRA is that you are not required to begin withdrawing from it at any age. Therefore, the money can be tax free inheritance money or simply security money for later. Most other long-term investments do require payouts at the end of the investment period (typically age 70 and 1/2).

     How do I get started? This is the easy part. Most banks have financial advisors in their local branches which will help you decide what type of long-term investment is right for you. They can walk you through the advantages of various investments in 30 minutes to an hour. Some types of investments require a minimum initial amount to start; a Roth IRA does not. The most important thing to remember when investing for your future is that while it may never be too late to invest, it is best to start as early as possible. The Roth-Type IRA offers a no-frills method of securing financial freedom with little nail-biting or thought.


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