Definition

• Like regular IRAs, Roth IRAs (Roth individual retirement accounts) allow participants to deposit funds in special accounts designed for retirement income. These funds, which may be in the form of stocks, bonds, money markets or other investment vehicles, may be withdrawn at age 59 ½ or older.
  
  

History

• Initial legislation enacting the IRA program was in 1974, but the popular Roth variation was introduced in the 1990s. It was less restrictive, and open to almost everyone including those with company pension plans and had higher income restrictions.
  
  

Features

• The Roth IRA features the following: 1) no taxes are collected on earnings; 2) no age-related mandatory distributions; and 3) workers can make contributions at any age as long as they have earned income. The traditional IRA does not offer these features.
  
  

Significance

• The Roth IRA is funded with after-tax dollars, and unlike the regular IRA, the Roth version is not deductible in the year the funds are invested. But the advantage is that there are few restrictions, except for those with adjusted gross incomes over $100,000 (single) and $159,000 (married filing jointly) where only a partial contribution is allowed.
  
  

Roth IRA Benefits

• Once funds are withdrawn, it is tax free income. No taxes are due either on the investment or earnings, whereas regular IRA withdrawals are taxable. Currently the contribution limit is $5,000 annually ($6,000 if 50 or older).