retirement

Roth IRA

Financial laws and their namesakes
Roth IRA

Roth IRA

In 1998 Americans were able to invest in a new retirement savings plan, the Roth IRA.

This account offered a big advantage over the traditional IRA that had been around for almost a quarter of a century. Workers now could contribute after-tax dollars and let them grow until retirement, when they could be withdrawn tax-free.

This major change in retirement saving was named after the legislation's chief sponsor, the late William Roth, senator from Delaware.

The Roth IRA has become a favorite of taxpayers who don't want to worry about tax bills on retirement distributions. In addition to the tax-free earnings feature, the Roth also allows account holders to contribute for as long as they like (traditional IRA contributions must stop when the owner is 70½) and money can stay in a Roth IRA for as long as the owner wishes (required minimum distributions are required of traditional IRAs, again when the owner turns 70½).

Earnings limits prevent some taxpayers from opening or contributing to a Roth. However, these individuals can open a traditional IRA and then convert it to a Roth because that income limit has been eliminated.


 

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