Roth IRA
The history of traditional and Roth IRA
Before traditional IRAs, pension plans specifically made for employees were in force. However, only a few with well paid jobs could afford it. This is why traditional IRAs were brought about so that not only could the average man begin saving his paycheck but his taxes could also be properly paid. The traditional IRA came about in 1974 and their taxation method was simple – upon withdrawal.
Even though, this put the individual in a lower income tax bracket upon retirement, it did not eliminate the need for the retired individual to get a job and keep working. Moreover, owning a home was also a dream for many. On the other hand, the well paid employees could easily pay the taxes of traditional IRA and since it put them in a lower income tax bracket upon retirement, it proved more beneficial to them. The purpose was clearly not served.
Finally, Roth IRA was incepted in 1997 and enacted a year later. The simple concept was the contributions were taxed right at the time of being deposited and anyone who had an earned income qualified for it. Moreover, Roth IRA served as a great investment because all types of investments allowed in the US could be held in this account. Since taxes were first deducted from all deposits right at the beginning, upon withdrawal no taxes needed to be paid.
However, Roth IRA has rigid qualifiers including income and contribution limits which are revised every year so that it cannot be used much by the wealthy. This does not stop the economically well off individuals to utilize the benefits of Roth IRA. In 2010, it was declared that irrespective of the income limits people can convert their traditional IRAs into a Roth IRA. This can be done for up to two years only.
Even though, this put the individual in a lower income tax bracket upon retirement, it did not eliminate the need for the retired individual to get a job and keep working. Moreover, owning a home was also a dream for many. On the other hand, the well paid employees could easily pay the taxes of traditional IRA and since it put them in a lower income tax bracket upon retirement, it proved more beneficial to them. The purpose was clearly not served.
Finally, Roth IRA was incepted in 1997 and enacted a year later. The simple concept was the contributions were taxed right at the time of being deposited and anyone who had an earned income qualified for it. Moreover, Roth IRA served as a great investment because all types of investments allowed in the US could be held in this account. Since taxes were first deducted from all deposits right at the beginning, upon withdrawal no taxes needed to be paid.
However, Roth IRA has rigid qualifiers including income and contribution limits which are revised every year so that it cannot be used much by the wealthy. This does not stop the economically well off individuals to utilize the benefits of Roth IRA. In 2010, it was declared that irrespective of the income limits people can convert their traditional IRAs into a Roth IRA. This can be done for up to two years only.
