Start a Roth IRA
Savings Account for Retirement
January 25th, 2006
A Roth IRA is a retirement savings account that you pay taxes on the
money before you put it in the savings account. When you are ready to take out
the money at retirement (starting at age 59 ½) all the money is tax
free, including the interest earned money.
A teenager would benefit from starting a Roth IRA when they start
working because they can invest up to $4,000 each year in an Individual
Retirement Account (IRA). If you pay taxes first it means that all the
interest acquired during all the years are tax free. This could save
the teenager a large sum of money in taxes when they retire. If you
child was able to put away $4,000 each year for the next 4 years it
could, at an 8 percent interest rate, equal $750,000 at age 65. Turning
just $16,000 into $750,000 is a great way resolve a retirement plan
early on. Many people wait until later in life to start and would not
ever see this kind of return on investment.
You can start an IRA for a child at any age and you can pay for chores
he does around the house and put these funds in the account. This will
train your child the value of saving money instead of the art of
The Roth IRA is generally better for most people. However each person
needs to weigh out if paying taxes and missing out on a tax deduction
is hurting them too much. The longer you plan on saving the money the
better the Roth IRA is for you.
You can set up your own individual Roth IRA or you can get one set up
through your employer. There is a maximum amount currently set at
$4,000 per year. With a total deposited amount for an individual not to
exceed $95,000 and a married couple not to exceed $150,000.
The more money you make the less you are able to contribute to a Roth
IRA. The Roth IRA amounts you can contribute gradually reduce until you
reach a gross income of $110,000 (single) or $160,000 (married filing
jointly). At this point you are no longer able to deposit funds in the
account for that year.
Each tax year can create different amounts of money that are allowed for
deposits along with caps for income. So it is important to be aware of
these amounts. If you work with a tax or financial planner they will
know what these amounts are going to be. If you are a do-it-yourself
financial person, you can check that tax laws at the IRS website each
The Roth IRA is a good way to start a savings for retirement, but you
can also have other retirement funds set aside. Tax-free interest
earned income is the most attractive feature of the Roth IRA.
Best Syndication Staff Writer
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