| A Roth IRA is a type of IRA, or Individual Retirement | | | | the contributions pool, but you can only add up to |
| Account, that allows for people to lower their total tax | | | | $4000 per year, so people can sometimes withdraw |
| liability by contributing a certain amount of their salary | | | | money and not be able to put it back in. For example, if |
| per year that is not taxed by the government. There | | | | you mistakenly withdraw $5000 from the account, and |
| are two separate pools of money in a Roth IRA. The | | | | you contribute $3000 every year, you will only be able |
| first is the total amount contributed by the owner of | | | | to put $1000 of that money back into the account |
| the account, and the other is the pool of interest | | | | each year, if you take account of the $3000 that you |
| earnings for those contributions. The money actually | | | | would put in anyway, to it will take five years to |
| contributed to the account is still subject to the income | | | | re-contribute that $5000. |
| tax, but the earnings are not taxed. However, if you | | | | Before you decide to take money out of a Roth IRA, it |
| decide to take money from the earnings pool under | | | | is important to consider the consequences it will have |
| certain circumstances, it is not only subject to the | | | | for your retirement savings. A comfortable retirement |
| income tax but also a ten percent penalty. | | | | is extremely expensive, and it takes many years of |
| Because you have already paid taxes for the money | | | | compounding earnings and interest to afford it. It is not |
| in the contributions pool, you can withdraw them at any | | | | advisable to cash out any retirement savings account |
| time, but you must be 59 ½ years of age or | | | | just to pay bills or buy something expensive, as any |
| older to withdraw from the earnings pool without it | | | | withdrawal can have severe effects on future |
| being taxed and penalized. If you use the money you | | | | compounded funds. It may even be preferable to take |
| withdraw from the earnings pool to pay for a house or | | | | out a loan than to completely cash out a Roth IRA, |
| higher education, you do not have to pay the ten | | | | because, in some cases, the interest you save from it |
| percent penalty, but it is still taxed. Be warned that it is | | | | being tax-exempt is more than the interest you would |
| possible to withdraw any amount, as long as it is from | | | | have to pay for a loan. |