The Roth IRA

One of the smartest money moves you can make is save for retirement. How many times have you been in a conversation and someone says “this year flew by?” We have to accept the fact that retirement is coming and if we aren’t careful it will sneak up on us. How do we get to the destination of a suitable retirement? We can’t use the money in the jar method but we need a better savings vehicle…the Roth IRA.

The Roth IRA is one of the best retirement plans because your money grows tax free so while your money accumulates you won’t have to worry about any of your money being taken for taxes. Another plus is when you withdraw the money at retirement, your withdrawals are 100% tax free.

Some information concerning the Roth:

• Withdrawals begin at age 591/2 and there is no mandatory withdrawal age.
• It is possible to make too much. If you are single and earn more than $105k, you can’t contribute. If you are married and earn more than $166K, you can’t contribute.
• The max amount you can contribute to a Roth for one year is $5,000 for 2009. You have until next year’s tax deadline, April 15th, to contribute for 2009.
• You can only contribute to a Roth if you have earned income.

If a 30-year-old contributes $5,000 each year until retirement and makes a modest annual return of 9%, he would have nearly $1.4 million saved by retirement. With the Roth, this money is all his and he would owe absolutely NO taxes on it if he waits until retirement to withdraw the money. That’s right, Uncle Same won’t get a dime.

If you are new to investing for retirement you should first consider the Roth because of it’s saving power and tax free status. The one exception is if your employer matches your 401k contributions; you don’t want to pass up that free money. Also, the Roth is more flexible than other “taxable” retirement plans because you you usually have more options to invest in.

So while it may seem you are a long way from retirement and you feel like you have plenty of time, the best time to start preparing for retirement is today! If you are not able to contribute the maximum amount, remember “…he who gathers money little by little makes it grow.” (Proverbs 13:11)