How to Build a Roth IRA

You are not too young to start building a Roth IRA.
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It pays to start a Roth IRA as soon as you can. Unlike with a traditional individual retirement account, there are no age limits on a Roth. The Roth is also much more liquid than other retirement options, according to a 2012 article published on the Kiplinger website. You won't owe income tax or a penalty if you withdraw from a Roth, as long as the account has been open for five years. Your income determines how much you can contribute each year.


The Internal Revenue Service sets limits on how much you can contribute to a Roth IRA each year. As of 2012, the general contribution limit for people under age 50 is $5,000. If you earn less than $5,000 a year, you can only contribute up to the total amount of your earned income. If you are single and earn more than $110,000 a year, you cannot contribute the full $5,000. You cannot contribute at all if you are single and earn more than $125,000. To get the most from your IRA, it's best to contribute as much as you can each year. You have until the deadline for tax returns to contribute to your IRA for the previous year.

Choosing Investments

You choose how you invest the Roth IRA. The options include a mutual fund, certificate of deposit or bonds. The investments you choose depend on how much you want the IRA to potentially grow and what your ability is to withstand risk. The Kiplinger website recommends young adults invest in mutual funds, as they offer the greatest rate of return and growth. A well-diversified fund helps reduce the risk of loss. To get the most out of your Roth, choose a company that charges low fees or no fees.


Not everyone can open a Roth IRA, as there are income limits. As of 2012, these are $125,000 if you are single and $183,000 if you are married and file jointly. If you have a high income, you can still eventually obtain a Roth IRA. Open a traditional IRA and make the maximum allowable contribution per year. You can then roll the amount in the traditional IRA into a Roth IRA. Because traditional IRA contributions are tax-deductible and a Roth contains after-tax contributions, you will must pay taxes on any deductible contributions you roll over to a Roth.


A Roth IRA offers two major benefits over a traditional IRA or 401(k) plan. You never have to take the money out of a Roth IRA. This means you could pass on your entire Roth IRA to your heirs. The other major benefit of the Roth is that you can withdraw your contributions and earnings tax-free in retirement. Traditional IRAs and 401(k) plans are tax-deferred, meaning you pay tax on them in retirement.

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