Definition: An individual retirement account (IRA) that has special tax advantages. The investor pays taxes upfront and it then grows tax free after that.
TeenAnalyst Advice: A Roth IRA has many tax advantages for people who are thinking about retirement. The investor pays taxes up front and then the money can grow tax free. They are able to take money out once they reach age 59 1/2.
To see the tax benefits, think of this. You invest $100 into your Roth IRA. You pay 30% in taxes up front so only $70 is actually invested. But that $70 grows into $1000 by the time you retire and you get to take out $1000. If you had a regular account, you would have to pay taxes on that $1000. Paying 30% up front is $30. But paying it at the end is $300!