Roth IRA (Individual Retirement Account)
A Roth IRA is an individual retirement account that allows you to save for retirement on a tax-advantaged basis. Contributions are made with after-tax dollars, meaning the funds have already been taxed and will not be taxed again when withdrawn in retirement. Earnings grow tax free, so withdrawals in retirement are also free from taxes. The Roth IRA is named after Delaware Senator William V. Roth Jr., who sponsored the legislation creating it in 1997 as part of the Taxpayer Relief Act of 1997.
The main advantage of a Roth IRA compared to other traditional IRAs is that contributions can be withdrawn without penalty at any time, while still maintaining tax advantages on withdrawal in retirement age or later life events such as death or disability. This makes them attractive to people who want more flexibility than traditional IRAs offer and need access to their investments before they reach age 59½ (the age at which most early withdrawals incur a 10% IRS penalty). However, there are some restrictions associated with contributions – namely income limits based on filing status and contribution maximums ($6,000 per year for 2020).
In addition to these core features, many financial institutions offer additional benefits related to investing through a Roth IRA such as automatic rebalancing options or access to professionally managed portfolios. For those looking for additional help managing their investments or planning for future goals, this type of account could provide valuable support over time.