What is a Roth IRA?
A Roth IRA is a modified individual retirement account in which someone can set cash aside after being taxed. A Roth IRA has limitations to the annual contribution amount of about $5,500. The earnings that you receive in this account are tax-free; therefore, you are enabled to withdrawal with no penalties after you hit 59 and half years old. The Roth IRA contains many investments such as: securities, derivatives, notes, certificates of deposit, and real estate accounts. History
The History of the Roth IRA was proposed in 1995 and was called the “American Dream Savings Account” ADS account (stocks-simplified.com). However, the Roth IRA would not start until 1998 due to the Taxpayer Relief Act of 1997 passing two years…show more content… An individual must look at all financial intuitions that offer a Roth IRA and choose the best option that will benefit their investment goals. Merrill Edge can open your account in just minutes online and gives the consumer four ways of funding the Roth IRA (BankofAmerica.com). The Roth IRA contribution must be funded in the account before April 15 of every year. Also, there are many benefits that the Roth IRA provides the plan holder. One main benefit is all interest earned in the account are tax-free after you turn 59 and a half. There are also no mandatory minimum distributions at 70 and a half. A Roth IRA account holder can withdraw money at any time without paying taxes up to their total initial contributions. There is no age limit on contributions as well. The Roth IRA is compounded yearly with a maximum contribution per year. A Roth IRA is more tailored for today’s youth, due to the amount of parabolic growth through a larger…show more content… The client would open a Roth IRA account with no starting balance and have a yearly contribution of $3,500. Assuming the interest rate is 6% and the marginal tax rate is 25%. The 22 year-old plans on retiring at the age of 70. So given this information we can determine an expected ending balance of $608,208. In Scenario two we have a 44 year-old with a yearly income of about $70,000. The client would open a Roth IRA account with no starting balance of about and a yearly contribution of $5,500. Assume the interest rate is 6% and the marginal tax rate is 25%. The 44 year-old plans on retiring at the age of 67. So given this information we can determine an ending balance of about