What Is a Roth IRA?
A Roth IRA allows you to contribute today and receive a tax benefit tomorrow based on the amount of your contribution and tax bracket. You can invest your contributions in a variety of investment alternatives and you can do it yourself or hire a professional. What you will most like about a Roth IRA is that the interest, dividends and capital gains you make in your account grow tax-deferred which means you pay no money while your account is growing.
Roth IRA vs Traditional IRA
What distinguishes a Roth IRA from a Traditional IRA is the timing of when you pay taxes. This means the question of Roth or Traditional is always a tax related matter. A Traditional IRA taxes your withdrawals when you start taking them because the terms of the designation gave you, the contributor, a tax break when you first contributed. A Roth IRA does not tax your withdrawals when you start taking them because the terms of the designation gave you no tax break when you first contributed. The similarities are that both grow tax deferred and allow for an expansive number of investment options.
Where Roth IRAs get complicated is when for tax related reasons an investor wants to take advantage of tax code loopholes and convert their Traditional IRA to a Roth IRA because it is advantageous. They want to enjoy the benefits of an immediate tax deduction at the time they set up a Traditional IRA and then enjoy the benefits of tax-free withdrawals from their Roth IRA after they converted. If this is of interest to you or to see if it might make sense for you to convert from a Traditional to a Roth we suggest you contact us or follow this link.
Just like a Traditional IRA, once you have established a Roth IRA you can manage it yourself or hire a professional.