- The definition of a Roth IRA is a type of tax-advantaged individual retirement account which allows the funds to be withdrawn tax free once the account owner reaches retirement age.
An example of a Roth IRA is an account that you open for your retirement that receives special tax treatment from the IRS.
Roth IRA definition by American Heritage Dictionary
Origin: After William Victor Roth, Jr. (1921-2003), U.S. congressman.
roth ira - Business Definition
I am getting ready to open an IRA. How do I choose between a Roth IRA and a regular IRA?
It depends largely on federal and state income tax considerations. While the Roth IRA has tax-free earnings, you pay taxes on the money that you put in the Roth IRA. The regular IRA has tax-free contributions, but withdrawals after retirement are taxed. If you think you will be in a higher marginal tax bracket after you retire, you would be better off receiving tax-free distributions when you retire. If you think you will be in a lower marginal tax bracket when you retire, but are in a high bracket now, you would be better off with a regular IRA.
Michael W. Butler, PhD, Professor of Economics, Angelo State University, San Angelo, Texas
roth ira - Investment & Finance Definition
An individual retirement account (IRA) that was introduced in 1998 and provides an alternative to a traditional IRA. With a Roth IRA, deductions can only be made with after-tax money. However, earnings are not taxed when the distribution is taken at 59⁄ years of age after holding the account for at least 5 years.
Money for certain eligible expenses can be withdrawn before age 59⁄ without paying tax or penalties, provided that the account has been active for five years. Those expenses include higher education, $10,000 for a first-time home purchase, and payment of health insurance for unemployed people.
A contribution of $3,000 a year can be made for a single person who earns up to $95,000, with ineligibility starting to occur at $110,000. Married couples can contribute $6,000 if they earn up to $150,000, with eligibility phasing out at $160,000.
Should I choose a regular IRA or a Roth IRA?
The hands-down favorite is a Roth IRA. Now, the money that goes into a regular IRA isn't taxed until withdrawal after age 59 1/2 A Roth IRA is funded with aftertax dollars, but no taxes are levied on the gains when the money is taken out during retirement. One way to look at the tradeoff is to decide whether you'll be in a lower tax bracket in your golden years. If so, you might want to lean toward the regular IRA. However, you will accumulate more savings in a Roth if your tax bracket remains the same or ticks up. The Roth carries other advantages that weigh heavily in its favor. Among them: With a regular IRA you must start withdrawing money at age 70 1/2 . Not with a Roth. You can take out aftertax contributions in a Roth free of tax and penalty (but not the gains) at any time and for any reason. The income eligibility requirements for a Roth IRA are more generous than for the traditional IRA. There are a number of calculators on the Internet for comparing the two products.
Christopher Farrell, Economics Editor, Minnesota Public Radio, heard nationally on Sound Money®
roth ira - Legal Definition