If you are saving for retirement by placing all your extra money into a savings account then you may be saving your money in the worst way possible. With a savings account there are minimal rules for the withdrawal of your money and no limits on how much you can place into the savings, but the amount of interest earned is practically non-existent. If your money is only placed into a savings account then over the years you are technically losing money.
This is due to inflation and in order to beat inflation a person saving for retirement must place their money into a retirement fund or invest the money. Otherwise the funds saved in a typical savings account will be worth much less than expected when time to cash in during retirement. Discussed below in this article are a few of the details that pertain to a Roth IRA and if you click here you can learn more.
A Roth account is a savings account specifically for retirement that is taxed the same year the money is put into the account. There are retirement accounts that allow for your money to grow and be placed into the account without taxes being applied until the money is withdrawn, but this is not the structure of a Roth IRA. Having your money taxed before being withdrawn is a benefit to some people but a disadvantage to others and this is typically the deciding factor for those in decision about a Roth.
Eligibility to contribute to a Roth IRA phases out at certain income levels, meaning if you make to much money you can not have a Roth. Most other retirement plans do not have this rule, but the worries are not to high because you have to make over $179,000 a year depending on your specific filing status in order to be cut off from having a Roth.
Also there are contribution limitations pertaining to a Roth in which depending on your filing status you can only contribute so much money a year to the fund. This defers most people and thus depending on your financial status you can decide if a Roth is right for you.
- Start Saving Young For Your Roth IRA (2011taxes.org)
- Traditional IRA or A Roth IRA You Decide (2011tax.org)