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Roth IRAs

The Roth IRA, named for William V. Roth, the retired Republican senator from Delaware, became a reality with the passage of the Tax Payer Relief Act of 1997. The passage of this bill and the launch of the Roth IRA stimulated a huge IRA renaissance. Not much had been happening in the IRA market since Congress took away the deductibility of IRAs for many people in 1986. Within one year, IRA contributions dropped by two-thirds and have been slow to grow since then. Along comes the Roth IRA, allowing you to deposit after-tax dollars into the plan and then enjoy tax-free accumulation and tax-free distributions. It's no wonder that in five short years, over 16 million people opened or began converting to the Roth IRA.

By far the biggest advantage of the Roth IRA is its ability to utilize tax deferred growth and compound interest to allow you to accumulate a tidy sum of money for your retirement. As good as the Roth IRA is, you'll have to save more than the maximum allowed in these plans if you want to live comfortably in retirement. Let's look at an example to illustrate the point.


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