ROTH IRAS Meaning and
Definition
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Roth IRAs, also known as Roth Individual Retirement Accounts, are a type of retirement savings account that offer tax advantages for individuals in the United States. They were established as a part of the Taxpayer Relief Act of 1997 and are named after their chief legislative sponsor, Senator William Roth.
Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars. This means that individuals contribute funds that have already been subject to income tax, enabling them to withdraw their contributions and any potential earnings completely tax-free once they reach retirement age. This tax-free growth and withdrawal feature is one of the key benefits of Roth IRAs.
In addition, Roth IRAs offer flexibility in terms of withdrawals. Unlike traditional IRAs, Roth IRA owners are not obligated to begin taking required minimum distributions (RMDs) at a certain age, allowing their funds to continue growing tax-free for as long as they choose to leave them untouched.
Another notable feature of Roth IRAs is the ability to make withdrawals on a penalty-free basis for certain qualified expenses, including first-time home purchases and higher education expenses.
Overall, the primary purpose of Roth IRAs is to encourage long-term savings for retirement by providing individuals with tax-free growth and tax-free withdrawals, creating a valuable tool for financial planning and securing a comfortable retirement.
Common Misspellings for ROTH IRAS
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Etymology of ROTH IRAS
The term "Roth IRAs" is composed of two parts: "Roth" and "IRAs".
The word "Roth" comes from the name of William V. Roth Jr., who served as a United States Senator from Delaware. Senator Roth was one of the main legislative sponsors of the Taxpayer Relief Act of 1997, which introduced the Roth IRA as a type of individual retirement account. The term "Roth" was used to honor his contribution to establishing this type of retirement savings plan.
"IRAs" stands for Individual Retirement Accounts. The term "IRA" itself has its origins in the Employee Retirement Income Security Act of 1974 (ERISA). This legislation introduced rules and regulations for various retirement plans, including individual retirement accounts.
In summary, the term "Roth IRAs" is a combination of the name of William V. Roth Jr.
