The “Roth IRA” was originally to be called “American Dream Savings Account”. Perfect name! Who has not dreamt “If only I could have one bank account that the IRS doesn’t know about!” Mr. Roth’s name was added to the law at the last moment.
Traditional IRA vs. Roth IRA
Most traditional IRA contributions are deductible. You save tax now, but everything’s taxed later. Roth contributions are never deductible, but all growth can be tax free. IRA – save now, or Roth – save later. One little catch: For your Roth IRA to be fully non-taxable there’s a test. You must reach the later of (1) age 59-1/2, or (2) 5 full tax years after first opening a Roth IRA.
Wealthy Barred from ROTH
If your income is too high you can’t even make Roth contributions. For 2012 your ability to contribute to a Roth IRA phases out for single filers as income ranges from $110,000 to $125,000. It’s $173,000 to $183,000 for couples.
Conversion to Roth