Roth IRARoth IRAs may not be for everybody, but unique features like tax-free distributions make them well worth a look.
The tax-free distribution feature is one of the main differences between a Roth IRA and a traditional IRA.
Roth IRAs allow your contributions and earnings to grow in a tax-free shelter. When you are ready to take distributions from the plan, the money comes free of income taxes as long as you follow the rules.
Of course, the whole transaction doesn't escape taxes. Unlike traditional IRAs, contributions to Roth IRAs are not deductible from current income tax, which is another major difference between the two plans.
Roth IRAs have the same contribution limits as traditional IRAs up to $5,500.
Taxpayers age 50 and over have a special catch-up period that allows them to add another $1,000 per year.
Your contributions and earnings grow in a tax-free account until you begin withdrawals usually not before age 59½. You can withdraw your contributions at any time without tax or penalty. However, in most cases, the IRS imposes a 10 percent penalty on withdrawal of earnings before the age of 59½ if the account has been opened fewer than five years.
Roth IRAs may appeal to investors who believe they will be in a high tax bracket when they retire. Although somewhat more complicated than traditional IRAs, Roth IRAs have unique features that make them very attractive to some investors.