THE POPULARITY OF THE ROTH IRA LIES IN TAX-FREE WITHDRAWALS
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The traditional IRA has been very popular among investors saving for retirement. However, for some retirees who retire with more taxable income than when they were working, the traditional IRA has some distinct disadvantages. Distributions would be taxed at a higher rate than the contributions would have been.
The Roth IRA was developed to address this issue. It allows persons who wish to save for retirement to invest after-tax dollars, which will grow tax-free, and then to receive tax-free distributions. Of course, like any IRA, there are contribution limits as well as rules against early withdrawal.
This concludes our study of Roth IRAs. Click here to learn even more about this topic with the Encyclopedia of Personal Finance™