Roth Ira

A Roth IRA, an annuity, not the sort of things every person talks about on a daily basis. So, what are they? The easy one first: an annuity. It is a contract between you and an insurance company. You give them some money, either in one lump-sum or a series of payment over a period of time.

The company then takes the money, invests it, and then - at some future date (generally after you retire) - starts to pay you back. Normally, they also have some sort of tax-deferment. And, there are different types of annuities, two to be precise: fixed rate and variable, and they are pretty self-explanatory. In the fixed, the company promises that your money will earn a specific rate of interest while it is growing. With the variable, the rate of return will depend on how the investments perform over time. Typically, the investor selects one or more mutual funds to put their money in, based on a list provided by the company.

Now, let's turn our attentions to the Roth IRA. It is a special type of individual retirement account (IRA), and was created by Congress as part of the Taxpayer Relief Act of 1997. It got its name from Senate Finance Committee Chairman William V. Roth.

He's been an advocate of retirement savings accounts like IRA's for a very long time. The Roth IRA's are unique in that they allow people to continue to contribute to them, and do not require withdrawal of funds, even after age seventy. That may seem like a very old age, but we must remember that life expectancy in the United States is close to eighty. Therefore, people must plan for somehow providing for themselves into their later years. After all, Social Security was never intended to fully support people, only supplement their income in their (so-called) "golden years."

So, what can an older American do if they need an income in later years? A Roth annuity can be the answer. By investing funds in that type of IRA, a person can assure themselves of a basic, steady income. Whereas, the money in a standard IRA has to be withdrawn, and taxes paid on it, even if the retiree wants to save the money for the future.

This makes a Roth annuity quite attractive; the person can take whatever money is left over from the regular IRA's disbursement and put it into a Roth. Putting it into a variable rate one, with a bit of risk, offers with possibility of a high return in a short time. It's up to the retiree to decide the degree of risk they are willing to live with.