Roth IRA  ——  For the smart investor, effectively shelter more money for retirement

A Roth IRA with the American Fraternal Union provides another retirement choice for the smart investor.  The primary difference between a traditional IRA and a Roth IRA is the tax treatment of the account.

Each year, you can invest up to the maximum annual contribution or 100% of your earned income, whichever is less.   Individuals of any age can contribute to a Roth IRA as long as they have earned income.  It is important to note that Roth IRA contributions are limited for the higher income range.  If your income falls in a "phase-out" range, you are allowed only a prorated contribution.  If your income exceeds this "phase-out" range, you will not qualify for any Roth IRA contribution.  See below for a summary of these ranges.

Contributions to a Roth IRA are not deductible, but your investment earnings are tax-free.   Retirement contributions are taxed up front but withdrawals can be made completely tax-free once you reach age 59 1/2 and have had your Roth IRA for five years.  For some people, paying taxes now to enjoy tax-free income later may actually make more financial sense in the long term.  For one thing, the Roth IRA allows investors to effectively shelter more money for retirement.  Although the annual contribution limits are the same for both traditional and Roth IRAs (see table below), because your Roth contribution is made with after-tax income, the full contribution can compound substantially over the years — without incurring any future tax liability.

Whether the Roth IRA is a better option than a traditional IRA really depends on your expectation of your future tax rate.

In the past, retirees routinely moved into a lower tax bracket.   However, with more people maintaining high levels of income even in retirement, it may make more sense to pay taxes on your contribution today, while you're still employed.