Roth IRA

A type of IRA that was created effective January 1, 1998 as part of the Taxpayer Relief Act of 1997. Contributions are taxed, but growth and distributions are not as long as you meet certain distribution requirements. It is intended to be used to save/invest money for retirement. The Roth was specifically created to give additional incentives for investors to save for their retirement.

There is a max amount you can contribute and there are many other pluses and minuses to a Roth IRA. I shouldn't need to say this, but do some thorough research before making any investment decisions.

For more information see http://www.senate.gov/~finance/ira2.htm or many other financial web sites.

The Roth IRA, which came into being through the enactment of the Taxpayer Relief Act of 1997, is the result of much work and suffering by former Senator William Roth of Delaware. Roth and others (notably Sen. Breaux) fought long to create a more compelling retirement investment vehicle for US citizens, and the success of their creation is a testament to their effort and foresight.

The Roth IRA is similar to the Traditional IRA in many ways: assets are tax deferred while they remain in the account, the maximum contribution is $2,000 per year (subject to certain income restrictions), and the individual may direct the assets as he/she sees fit. But there is a big, big difference: while withdrawals made from a Traditional IRA may be taxable as income in the year they are made, qualified Roth withdrawals are tax free.

Because of the incredible benefit this may provide to retirees (who may not be able to afford large tax bills on their reduced incomes) , assets in Roth IRAs have skyrocketed. This trend has also been helped by the ability to "recharacterize" your IRA, moving Traditional IRA assets into a Roth, in exchange for paying income tax on the transfer.

These accounts are infrequently referred to as "back loaded" IRAs, though this should not be confused with a back-end load or other kind of sales charge.