SEP IRA

Archive for May, 2006

Question: Can someone explain what a Roth IRA is to me in simple terms?

What do I need to start one and is this the best way to go? I work as a restaurant server and want to do this for as long as possible so I am not going to get a typical job with retirement benefits.

Answer: To begin with an IRA is a desigination. IRA means you have designated an investment vehicle (to be explained later) as your Individual Retirement Account. This designation allows you to have certain tax shelter properties.
A standard IRA allows you to defer taxation of your investment untill you cash it in after you have turned 62 and half. This means if you make 50,000 dollars and you invest 3,000 dollars, then your taxable income will be 47,000. The great thing is when they tax you at the end, you will probably be in a lower income bracket (because you are retired) so less taxes will be taken.
A Roth IRA takes taxes now, but when you cash out at 62 and half you will not be taxed on the dividends. So any money you make between now and then on that investment won’t be taxed.

An investment vehicle is where you put your money, this can be a standard savings account, money market account, mutal fund, or stock portfolio. You should idealy pick a stable and safe investment vehicle for you IRA.

Self-Direction — Can I Invest In Start Up or Existing Businesses?