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What is a Roth Ira?

Well, let's start with what an IRA is. An IRA (Individual Retirement Account) is an account that the government has said will receive special tax considerations in order to help people plan and finance their retirement. There are two basic types of IRA, the Traditional and the Roth. The Traditional IRA is set up so that you can put money into it (a contribution) before tax. The contributions and their growth are then tax deferred until you begin to withdraw them. You are basically hoping that you are in a lower tax bracket when you retire, so you get taxed lower than you would have when you made the money in the first place. You may not take any money out before 59 1/2 without a penalty and you MUST start taking money (distributions) by age 70 1/2 .

Enter the Roth

A Roth, is a bit of a different animal. The Roth allows you to contribute POST tax money. This means you already paid tax on it once, so you shouldn't have to pay tax on it a second time. The contributions and their growth are tax free. Most anyone can contribute to a Roth, providing your MAGI (Modified Adjusted Gross Income) will allow it. Here is a good page showing the calculations on MAGI and some other info on both Roth and Traditional IRA's: https://www7.oftnet.com/IRAEli gibilityCalc/learnAbout.jsp.

Bu t I still can't withdraw until I'm 59 1/2 , right?

Not so much. With the Roth you can withdraw your contributions at any time penalty free, the growth, however, could incur a penalty if withdrawn before the allowable age. Also, you never need to take a distribution. As a matter of fact, if you never use it, you can pass it on to your kids!

Some Rules Still Apply

There are still the normal contribution limits for a Roth, for the year 2008 it will be the lesser of either 100% of your earned income or $5,000.00. As stated before, you may incur a penalty if you withdraw any of the growth on your contributions before 59 1/2 . But, with the other freedoms that a Roth affords you, and the tax free distributions, many economists feel that the Roth offers you more "bang-for-your-buck". As always, it is still vitally important that you diversify your investments and monitor them at least every six months.

What about other retirement vehicles?

The 401(k), if you have the opportunity, is a fantastic retirement plan, because you basically get free money. Your employer will match a certain percentile of your contributions up to a maximum percentage. This is wonderful, because you get to play with

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