Governmental influence and the Roth IRA
As I mentioned before, the government uses the federal tax system to influence our behavior as citizens and residents of the United States. If you look at any tax break, tax credit, or tax write-off you will see that they are designed to direct you toward a certain type of behavior. Incidentally, I think this is a major reason why the nationwide sales tax called the Fair Tax will have trouble being passed. A sales tax would take a lot of the power that the government enjoys out of its hands and there are some very powerful people that want to keep that power.
With the tax system as it is, you may as well use it to your advantage. Don’t pass up the best deal the government is offering, the Roth IRA. With a Roth IRA, you invest money after you pay taxes on it (post-tax dollars), but you get to withdraw the money tax free. It’s a great deal and could save you hundreds of thousands of dollars when you retire.
Another thing about the Roth IRA is that you can invest in anything you want within an IRA account to include CDs, stocks, bonds, mutual funds, and even real-estate. There is a common misperception that a Roth IRA is a stock account. This is not true. If you are only comfortable investing in CDs, you can do that under the umbrella of a Roth IRA and not be taxed on your earnings every time your CD comes due. Again, it’s a great deal.
One thing to remember, you can’t pull your money out of the Roth IRA until you’re 59 and a half without some penalties. The Roth IRA certainly is a way that the government encourages people to save and invest. In the tax system that we’re in, I think it’s imporatnt to take advantage of every break you can get and this certainly is one of the best, if not the best tax break available.