Glimpse into Roth IRAs

by Minority Fortune

On your path to wealth building, preparing for your retirement is one of the essential steps. A retirement account just doesn’t start building itself. It may be cliché, but it’s true. You may want to consider starting a Roth IRA.

What is a Roth IRA?
It’s a fund of after-tax dollars set aside for retirement that generates interest and allows controlled annual contributions. The great thing about Roth IRAs is RothIRA_chartthat they have less withdrawal penalties after the account has existed for a certain amount of time. Roth IRAs also give you the freedom to distribute your money into other investments for further growth. There is no further taxation on the funds matured in the account. The disadvantage is that you earn no tax deductions for contributing to it and get taxed if you withdraw money before you turn 59.5.

What’s the rules?
The current rule is that any individual earning at or less than $101,000 or married couples with joint returns at or less than $159,000 are eligible. Contributions can be as much as $5,000 or $6,000 if you’re 50 or older by the end of this year. Depending on your risk tolerance, your interest rate can range.

How powerful are they?

Well, just look at this example on MSN MoneyCentral. If you were to contribute $2,000 at the age of 16 with a return of 10.7%, your money would compound favorably over the years.

* $25,917 by the time you are 30
* $71,625 by the time you are 40
* $197,943 by the time you are 50
* $547,037 by the time you are 60
* And $1,114,423 by the time you are 67

And to think this is just a result of a single $2K payment! See what one diligent payment can accrue to over time? Think about what happens if you diligently contribute the maximum annually. You’d have one sexy retirement, that’s for sure.

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