Roth IRAs were named for Senator William V. Roth, Jr. and introduced as part of the Taxpayer Relief Act of 1997. The Roth IRA's principal difference from most other tax advantaged retirement plans, including Traditional IRAs, is that, rather than granting a tax break for money placed in the plan — contributions to Roth IRAs are not tax deductible — with some restrictions, the tax break is granted on the money withdrawn from the plan during retirement. For example, Roth IRAs are "tax-free" for withdrawals from principal when the plan has been opened at least 5 years; and the owner must be at least 59½ for withdrawals from the growth portion above principal.
Contributions to Roth IRAs are the lesser of the participant's taxable compensation and the annual limit amounts referenced earlier. Thus, in 2010 and 2011, anyone using Roth IRAs to fund retirement can contribute up to $6,000. As with Traditional IRAs, a Roth IRA can be established at a bank, mutual fund, or brokerage, or by using other investments including real estate. However, Roth IRAs can also enjoy the guarantees and security of an Individual Retirement Annuity. But, again, contributions to a Roth IRA are never tax-deductible.
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