Roth IRA vs. IRA

[Kathy]

A Roth is similar to a traditional IRA in that it is a way to set aside the lesser of $2,000 or your earned income per year for your retirement. Both accounts offer certain tax advantages and both offer certain penalties for accessing the money before retirement. In order to contribute to either a Roth or a traditional IRA, you must have earned income. There are additional restrictions on contributions to Roth IRAs if your income is too high.

The general benefit of a traditional IRA is that the contributions are often tax deductible when made. You then pay taxes on the money when you withdraw it. (The theory was always that you would be in a lower tax bracket when you retire than you are when you are working.)

The benefit of a Roth IRA is that, although you don't get a tax benefit when you contribute, if you follow the rules and allow the money to stay in the IRA and grow, you pay no taxes on the money when it comes out. No taxes on any of the capital gains, dividends, earnings, interest, etc... AS LONG AS YOU FOLLOW THE RULES!!!!

The IRS puts out a pulication 590 which you can download from www.irs.ustreas.gov. There is also a web site dedicated to Roth info. I think it's just www.rothira.com[/url. Any mutual fund group, broker or bank can provide you with more information if you need.

Welcome to the world of saving and investing!

[This message has been edited by Kathy (edited 09-07-1999).]

[This message has been edited by Kathy (edited 09-07-1999).]

[Guest odette]

I am currently a college student that has been informed about Roth IRA, this past weekend... I was wondering if somebody could quickly brief me or direct me to what a ROTH IRA is? And what is the difference between a ROTH and IRA? Thanks.

[John G]

You can get some good general info by calling brokerages (like Schwab or Fidelity) or mutual fund families (like Janus, Vanguard, Scudder) and asking them for a "just getting started" brochures. Try a few places. Most of them have good materials.

Novices can learn a lot from readying Kiplinger Finance or Money. You will find these mags in all libraries.

You are wise to start early. You may want to talk with an Aunt, Grandparent, or your folks. This is adult stuff, and who knows, maybe they will match your initial contribution. Remember, you can start out smaller that 2,000. Even a couple of hundred gets you going.