hgazette.com, Haverhill, MA

Business

June 23, 2011

Roth IRA: A lifetime investment

Some investments are appropriate during your working years, while others are more suitable for retirement. But a Roth Individual Retirement Account (IRA) can provide you with benefits at virtually every stage of your life. Let's take a quick journey through some of these stages to see just how valuable a Roth IRA can be.

To begin with, you can open a Roth IRA at any age, provided you have earned income and meet certain income limits. So if you're just starting out in your career, put as much as you can afford into your Roth IRA and gradually increase your contributions as your income rises, up to the contribution limit. A Roth IRA is an excellent retirement savings vehicle because it can grow tax-free, and your contributions can be invested into just about any investment you choose — stocks, bonds, mutual funds, CDs and so on.

Of course, when you're young, you might not be thinking much about retirement. But the earlier you start contributing to a Roth IRA, the more you could end up with — and the difference could be substantial. In fact, if you started putting money into a Roth IRA at age 30, and you contributed the maximum amount each year until you reached 65, you would accumulate more than $766,000, assuming you are in the 25 percent tax bracket and you earned a 7 percent return, compounded annually. But, given the same assumptions, you'd end up with only about $365,000 if you waited until 40 before you started contributing.

It clearly pays to contribute early and annually to a Roth IRA. (In 2011, the annual contribution limit is $5,000, or $6,000 if you're 50 or older.) There are additional benefits to funding a Roth IRA, such as its flexible withdrawal options, which are available to you even before you retire. Since you already paid taxes on the money you put into your Roth, you can withdraw your contributions at any time without paying taxes or penalties. Generally speaking, it's certainly best to leave your Roth IRA intact for as long as possible. But if there's an emergency and you need access to the funds, you can also withdraw your Roth's earnings tax free, provided you've held your account at least five years and you don't start taking withdrawals until you've reached 59¬.

Text Only | Photo Reprints
Business

Business News
Photos of the Week
Stocks