Be Roth Smart: An Investment Guide to Roth IRAs
Twenty years ago, a mind-blowing paradigm shift hit the American investment scene: retirement accounts with essentially no tax. This innovation was called the Roth IRA.
Roth IRAs were created to incentivize individuals to better prepare for retirement by allowing them to save after-tax earnings in an account where it was possible to withdraw contributions and earnings completely tax-free throughout retirement.
Because of this advantage over other investment vehicles, almost everyone should consider Roth IRAs as a core component of saving and spending plans for retirement. The potential growth of tax-free returns compounding over prolonged periods of time is significant and can potentially eliminate the government's role in your retirement.
But how did this incredible investment option come to be? And how could you take full advantage? Let's dig deeper.
First, a Brief History of the Roth IRA
Roth IRAs were born out of the 1997 Taxpayer Relief Act and named after Sen. William Roth of Delaware, who co-authored the bill. Back then, the contribution limit was set at $2,000, with the hope that these new accounts would encourage workers to save more for retirement.
Over the past 20 years the Roth IRA has evolved:
- In 2001, Congress modified the contribution limits to increase with inflation and
