Roth IRA

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An Roth individual retirement arrangement (Roth IRA) is a personal savings plan which allows one to invest or set aside money for retirement, while offering deferred tax / tax advantages.[1] The Roth retirement plan under US law that is generally not taxed, as long as certain conditions are met. The US tax law allows reduction in tax on a limited amount of saving for retirement. Roth IRA's main difference from the majority of tax advantaged retirement plans is that, instead of granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.

"A Roth IRA is setup and funded by an individual; however, some employer/group plans can have Roth accounts. A Roth is unique in that it is funded with after-tax dollars, meaning the individual does not deduct the contribution from that year’s income taxes. He or she pays income taxes on the dollars earned and then contributes to the Roth. The benefit of this account type is that the distributions at retirement age are 100% tax-free. No income tax is claimed from the distribution."[2]

The Roth IRA is basically a contract between the taxpayer and a custodian (such as a bank, stock broker or insurance company.) In most cases, the contract is signed as a part of the paperwork in opening the account. Although some bloggers have advocated creating your own corporation to serve as the custodian or to invest in collectables, the Internal Revenue Code and Treasury regulations restrict who can serve as a custodian and what types of assets can be placed in a Roth IRA. A non-bank trustee or custodian must obtain the prior written approval of the IRS before opening Roth IRA or other such accounts, and the IRS publishes a list of approved non-bank trustees or custodians.[3] Roth IRAs can be contain investments in securities, most often common stocks and bonds, typically through mutual funds. Roth IRAs also, although less commonly, allow other investments including real estate, derivatives, notes, and certificates of deposit. Roth IRAs also allow annuities bought from a life insurance company. In addition, under Internal Revenue Code Section 408(m), both participant-directed accounts and IRAs cannot invest in collectibles, such as art, antiques, gems, coins, or alcoholic beverages, and they can invest in certain precious metals only if they meet specific requirements.

Further reading


  • Daryanani, Gobind (1998). Roth IRA Book: An Investor's Guide: Including a Personal Interview with Senator William V. Roth, Jr. (R-De), Chairman, U.S. Senate Finance Committee. Bernardsville, NJ: Digiqual Inc.. ISBN 0-9665398-1-8. OCLC 40340829. 


  • Merritt, Steve (1998). All about the New IRA, Roth, Traditional, Educational: How to Cash in on the New Tax Law Changes. Melbourne, FL: Halyard Press. ISBN 1-887063-07-2. OCLC 39363078. 




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