Think About it - The Roth IRA

by Laird Yock, Philanthropy Works, Director of Content

I recently heard a commentary about why congress continues to allow the Roth IRA. Sometimes it seems too good be true. 

If you have a Roth IRA you know what I'm talking about. If you haven’t yet launched your own Roth IRA, hurry up and do so – and fund it consistently.  

A Roth IRA: 

• Is funded with AFTER tax dollars
• Accumulates value over time TAX-FREE
• Allows all dollars to be withdrawn TAX-FREE in retirement
• Is more flexible than a traditional IRA

So, why does Congress allow the Roth IRA to continue, since it's clearly a money-losing proposition for the government? Not to be cynical, but I suspect it's because the Roth IRA can be taxed today and that means that the government receives immediate income. The fact that some years in the future the money will be withdrawn and will not be taxed isn’t a problem of the current congress. That’s the best reason I’ve heard for the continuation of the Roth IRA. Until I heard this explanation I kept expecting the Roth IRA to go away.

In the Guided Learning Course The Basics of Wealth Accumulation we discuss the Roth IRA in the context of the fundamentals of personal finance and the difference between wealth and income. People with accumulated wealth (i.e.: your prospective major donors) understand the time value of money and they most generally understand taxes. A Roth IRA is relevant to both issues.

Do yourself a favor – check it out! If you are thoughtful about your own tax planning, someday you too will be a major donor.

Remember, this IS relevant to your work. Having even a general understanding of wealth accumulation will help prepare you to more clearly understand your donors' stories, as well as be on the lookout for creative gift planning opportunities.

Read here for a comparison of Roth IRAs vs. Traditional IRAs.