With a Roth IRA, all withdrawals are tax-free after five years and age 59-1/2. However, you
don’t have to wait that long to tap your account: you can withdraw the amount you have
contributed at any time, tax- and penalty-free.
Suppose, for example, from age 40 to age 50, you contribute a total of $40,000 to a Roth
IRA, which grows to $60,000. If you need cash then, you can pull out as much as $40,000 and
owe no tax or penalties. If you withdraw $40,000, the other $20,000 can continue to build
up, tax-free.
Roth IRAs allow you to select your own investments. You can invest in no-load mutual funds,
holding down the fees you pay, which can boost returns over the long-term.
Investing in a Roth IRA each year is a form of dollar-cost averaging, which is a proven
means of reducing your price-per-share in the stock market. If you decide to invest Roth
IRA money in certain mutual funds, you can arrange for monthly transfers from your bank
account to the fund, to lock in the advantages of dollar-cost averaging.
