Q: I hear people talking about the “Roth”, but I’m embarrassed to admit I really don’t fully get it. Is it something I should understand, or does it not matter for me?
A: GREAT question! The ROTH , which is a type of IRA, is one of my favorite saving vehicles, especially for younger savers. It definitely matters for you!
How it differs from a regular IRA is that you trade getting the tax deduction now for the ability for the whole thing to be tax free later on someday in retirement. Which can be a great deal if we don’t need the tax deduction now.
This means if you make the maximum annual contribution of $5500/year (in 2014) and your Roth grows to $250,000 between contributions and compounded earnings, that whole entire $250,000 is yours tax free. This is a great thing, because hopefully you will be paying more taxes in retirement than you are now (due to the stellar amount of savings you will have accumulated by then) and it’s gonna be REALLY NICE to have a pot of money that is all yours, with no taxes owed to the IRS.
There are so many things I love about the Roth!
Please be in touch if you want help with achieving YOUR money goals! Please send your money questions to: dearaddie@moneyfull.com.