Paycheck Chronicles

The Roth IRA Movement


Roth IRA

Source: via Jeff on Pinterest

Today is a special day, at least to financial geeks like me.  Today is the day that over 140 personal finance bloggers are getting together to publicize the value of Roth Individual Retirement Accounts (IRAs).  What ever would provoke us all to write about the same subject on the same day?  Wouldn't that be silly?

It all started with Jeff.  My imaginary (which means internet) friend Jeff Rose.  Jeff and I have been working together for a couple of years.   He runs Good Financial Cents, a super-duper personal finance blog, and because of his experience in the military, he also has another blog called Soldier of Finance that talks about military specific issues.  Jeff even interviewed me for his Soldier of Finance blog.

Earlier this month, Jeff spoke to a group of 50-60 near-to-graduation college students.  During his presentation, he asked how many of them had heard of Roth IRAs.  And you know how many people raised their hand?


This, my friends, is a problem.  The Roth IRA is arguably the best retirement savings product available today, and none of these college students had ever even heard of it!  Even if the Roth IRA wasn't exactly right for them at this particular point, it is really concerning that they weren't even aware that it existed.  And so a movement was born.  The Roth IRA Movement.

Jeff asked his PF friends if they would help spread the word about Roth IRAs, and over 140 people agreed to write about Roth IRAs today.  So, here we go.

I am smart enough to know when someone is smarter, funnier, or just plain cooler than me.  Kevin from Thousandaire is definitely one of those people, even if listening to him talk makes me tired..  And he did this fabulous piece about Roth IRAs:

I'm pretty sure that there isn't anything else I can say about Roth IRAs that Kevin didn't cover in his video.  In case you were overwhelmed, here's a synopsis of the key points:

  • pay taxes on money when it is earned investment and earnings are tax-free at withdrawal
  • limits on contributions based upon income level
  • penalties for early withdrawal, though some exceptions do exist
  • set up through your choice of companies
  • unlimited investment options
  • fees vary by company and account
  • annual contributions capped at $5000 for 2008 ($6000 if age 50 or older)
  • may contribute until 15 April of the following year
  • no required distributions
  • non-working spouses may set up a spousal IRA
  • minimum contributions vary by company
Roth IRAs are pretty much awesome, but they are not for everyone (unless you are deployed to a tax-exempt combat zone.  Then they are for everyone.)  In a similar category of tax-advantaged accounts, you can also choose a traditional IRA or a Thrift Savings Plan (TSP) account.   Here are some question that you need to consider when choose a Roth IRA.
  •  Is your income likely to be higher or lower when you are taking money out of your IRA in retirement?
  • Is your current income subject to federal income tax, or are you below the level of income to pay federal taxes?
  • Would a traditional IRA be deductible, based on your income level?
  • If you have limited investing funds, is TSP a better choice for you?
Here's the hard part:  starting.  Better to pick a less-good option (between tradition IRAs, Roth IRAs, and TSP) than to do nothing at all.  If all these decisions make you crazy, throw a dart, hit the Roth IRA, and start one.  Just do it!

P.S.  Don't forget that the Roth TSP option is coming soon!

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