What is a Roth IRA?
A Roth IRA is a newer type of IRA, established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the earnings to grow tax-free. Contributions are made with after-tax dollars, and withdrawals are tax and penalty-free as long as the account has been open for five years and you are over age 59 1/2. The amount that someone is able to contribute is dependent upon their income, age, and tax filing status. Unlike traditional IRAs, Roth IRAs do not require you to start making withdrawals at a certain age and they also allow an individual to make a tax and penalty-free withdrawal up to $10,000 for a first time home purchase.