What is a Roth IRA? An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free.
Why are Roth IRA’s a good option?
* Low tax rates. Federal income taxes are about as low as they will ever be. If you’re in your 20s now, you’ll probably be paying a higher tax rate when you’re 59 1/2. If that’s the case, it’s better to pay taxes now than when you retire.
* Early withdrawals. You can withdraw your contributions from a Roth at any time without penalty. You can also avoid the 10% early-withdrawal penalty if you’re a first-time home buyer, or if you’re disabled. Or dead. But let’s not think about that.
* Simplicity. When you retire, it’s far easier to take tax-free withdrawals than it is to calculate what you’ll need after taxes and send off estimated payments to the Internal Revenue Service.