So what exactly is a Roth IRA? (Other than one more confusing term for investing).
Back in 1997 congress put together a bill called the Taxpayer Relief Act of 197. One of the great things to come out of this was a new IRA, called the Roth. (Named for the Senator that pushed for it’s creation.)
An Roth IRA is not actually an investment, such as a stock or a bond is an investment. Instead an Roth IRA is an account where you hold your investments.
Why the special account? IRA’s as a whole were designed to be used as a retirement savings tool that protects your investments from taxes and you getting at the money before it is retirement time.
The best way that I have heard to describe it is that it is a coat that you wrap around your investments. Why would your investments need a coat?
Just like a real coat protects you from the cold, an IRA is protecting your money from taxes. The less you pay in taxes the more your money will grow due to compounding.
You may also like: The Skinny on the IRA