Roth Ira

Since when is age important to a Roth IRA? Well, first things first, what is a Roth IRA 401(k)? Actually, the first question should be: what is an IRA? Back in 1978, the U.S. Congress was searching for ways to encourage people to save for their retirement.

Far too many workers were looking to Social Security to sustain them, and this was not good. After all, that program was enacted back when the life expectancy was far lower than today. It was never intended to support so many people for so many years. The funds were to augment people's income, not replace it. It was decided that if people were given a way to save, which also lowered their federal and state taxes, they would use it.

The result was the Tax Reform Act, which, under Section 401, paragraph (k), created tax-deferred savings accounts. The co-called Individual Retirement Accounts (the IRA). The plans would gradually come to be called "401(k)'s", for an obvious reason.

The accounts have four aspects to them. First, the worker can put in up to fifteen percent of their monthly gross salary (up to a maximum of $15,000 each year).

Next, each contribution is removed from the worker's paycheck before their taxes are calculated. That means the money is removed before the worker gets the check; meaning, before they can spend it. This makes it is a rather painless way of saving money for retirement. Third, although this is not always the case, the employer sometimes matches a portion of what the worker puts in. Finally, the money is invested and administrated by a third party. As to where the money is invested, those decisions are made by the worker from a list of available investment options.

Then, in 1997, came a different sort of IRA, the Roth IRA. Its chief difference: taxes are paid on the contributions the worker makes, but the savings grow tax-free, and then the withdrawals will not be taxed. This is where the whole issue of age comes in.

Because, in order to withdraw funds from the account, the recipient has to be older than age 59 years and six months. Then there is the flip side, the upper age limit. The Roth IRA does not require a minimum distribution every year. This is something that really irritates older workers/retirees. After reaching age 70 and six months, they have to withdraw money from a traditional IRA every year, and pay income tax on it. In the case of the Roth IRA, there is no such requirement. In addition, contributions to a regular IRA are not allowed after that age, but putting money into a Roth account is permitted. So, while age does play a factor in a Roth account, it is clear that it is not the single most important in deciding what type of retirement account a person should have.