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Friday, February 27, 2009

What is a roth ira?

By Jack Jones

A Roth IRA is a personal retirement fund started in 1997 to help encourage people to plan for their own retirement instead of relying on the social security system.

There are many common traits between the regular IRA and the Roth IRA, and it is important to know the differences between them when deciding which to use.

One main difference is that the traditional IRA is tax deductible. This means that you can deduct all that you contribute to the fund during the year from your income while filing your taxes. The Roth IRA however is not deductible.

Another main difference to consider is that the penalty free withdrawal allowances in the traditional IRA are very few and far between. And they are only allowed under very specific circumstances.

The Roth IRA is much more loose with the withdrawal allowances. After five years you are allowed to withdraw the funds contributed.

The looseness of the Roth IRA has led some to use it as an emergency account for unexpected costs. After the 5 years, you can use it for emergencies and if there are none then you have a good start toward retirement.

When planning your retirement, make sure to consider all these things.

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