Before I start with my usual craziness, I need you to identify yourself as one of two kinds of people: those who know about Roth IRAs, and those who don’t. If you already know about Roth IRAs and maybe even have one yourself, think about how awesome it is. Now think about how awesome it would be if all your friends knew about it too. Give some extra thought to the young people you know who can take advantage of about 40+ years of compound interest in a Roth. Now be a good friend and send this video to them! This video is for them! You can use the tweet button to your right, or better yet, just send them an email with the link and a note telling them how much you care.

Now for the craziness. I need to tell you I’m a nerd. I talk about nerdy things like video games and the origins of idioms (did you know “How come…” is an abbreviation of “How did it come to be that…”?) and personal finance.

Sometimes I will be talking about investing and I’ll casually mention my Roth IRA, and sometimes the person I’m talking to gives me the, “Who is this Roth dude and why are you giving him money?” look. I want to fix that.

This video does a great job of explaining how investing works outside of a tax deferred account, and then explains the benefits of a Traditional IRA and Roth IRA. It will also make you laugh so hard you’ll have milk come out of your nose. Even if you aren’t drinking any milk. It’s weird.

There are a bunch of great things about a Roth IRA, and I’m gonna give you the most important stuff right now.

First, a Roth IRA is a retirement account. It can have stocks, bonds, mutual funds, CDs, savings bonds, or just about anything else you might want. It is very flexible. Now for the other cool stuff:

  • You pay taxes up front (in the form of income tax) so your money grows without capital gains taxes and also isn’t taxed when you withdraw from the account (if you follow the rules)
  • You can remove your contributions at any time. That means if you put $1,000 in the Roth IRA, you can take $1,000 out at any time for any reason (unless you’ve lost money in your investments, in which case you can only take out what you haven’t lost)
  • Your capital gains (interest earned) are never taxed !
  • You can remove interest earned without taxes or penalties if they are used for qualified distributions, such as buying your first home or paying for higher education, but only after the account has been open for 5 years.
  • The maximum annual contribution is $5,000 in 2010, unless you are older than 50 in which case your limit is $6,000

If you want the full (boring but important) details on a Roth IRA, check out the Motley Fool. If you want to sign up for a Roth IRA right now, I suggest either Sharebuilder or Zecco. I use Sharebuilder for my Roth IRA because you can get 12 trades month for $12. Zecco has cheap trades as well and I do my personal investing outside of my Roth there. Sharebuilder has a referral program where you get $25 if I refer you, so if you want to use that service then post a comment and I’ll get you a link. Zecco also has a referral program, but it doesn’t give you anything. :(

It doesn’t take a genius to know the importance of saving money early; all it takes is a quick look at this video. So if you have friends who aren’t saving money and don’t know about the awesome benefits of a Roth IRA, send them this video and save their financial lives.

If you already have a Roth IRA, where do you have it and what do you invest in? Let’s find the best places to maintain your Roth and the best investments to put inside one. Leave me some comment love below!

*Post featured at Carnival of Personal Finance