The Roth IRA is relatively new to the investment world, having only been on option since January 1, 1998. It was created as a result to the Taxpayers Relief Act in 1997 to help Americans better save for their retirement. For some people (I generally think that in the long run, the Traditional IRA is the better bet for most people; see the Traditional IRA vs Roth IRA breakdown), the Roth IRA is a better choice for their investment needs than the older Traditional IRA for several reasons.

The Benefits

  1. All qualified contributions are made with after-tax dollars and therefore all monies in the account, including earnings can be withdrawn tax free with certain provisions.    
  2. Contribution eligibility is not restricted by active participation in an employer’s retirement plan.
  3. The minimum distribution rules don’t apply. Unlike the traditional IRA, you don’t have to draw on your Roth IRA at age 70½, which means your earnings continue to grow tax-free.
  4. You can take certain early distributions without paying any early distribution penalties.


  1. If you are under the age 50, you can donate as much as $4,000 in 2007, and $5,000 in 2008.
  2. If you are over age 50, you can donate as much as $5,000 in 2007, and $6,000 in 2008.


  1. You or your spouse must have compensation income equal to the amount you have contributed.
  2. Your modified adjusted gross income can’t exceed certain limits. For the maximum contribution, the limits are $99,000 for single persons and $156,000 for married individuals filing joint returns.  These dollar amounts apply through 2007.

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