Roth IRA
A Roth IRA is a US individual retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.
2025 contribution limit: $7,000/year (plus $1,000 catch-up for age 50+). Income limits apply — single filers begin phasing out at $150,000 MAGI and are ineligible above $165,000 (2025).
Unlike traditional IRAs or 401(k)s, Roth contributions (not earnings) can be withdrawn at any time without penalty. No required minimum distributions during the owner's lifetime.
The Roth is particularly valuable for younger earners who expect to be in a higher tax bracket in retirement — paying tax now at a lower rate to avoid tax later at a higher rate.
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- 401(k)
- A 401(k) is a US employer-sponsored retirement savings account. Contributions are pre-tax (traditional) or post-tax (Roth), grow tax-deferred or tax-free, and benefit from compound growth over decades.
- Safe Withdrawal Rate (SWR)
- The safe withdrawal rate is the maximum percentage of a retirement portfolio you can withdraw annually without running out of money over a given time horizon. The 4% rule is the most widely cited guideline.
- Compound Interest
- Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It causes savings and investments to grow exponentially over time.