Q. How does a Roth IRA work?

A. A Roth IRA is different than a traditional IRA. In a traditional IRA, you contribute money before it is taxed. So that money is not included in your taxable earnings for the year. But you will have to pay taxes when you withdraw money from your traditional IRA when you retire.
But with a Roth IRA, you contribute money that has already been taxed. But at retirement age when you start to withdraw money including earnings, you will not have to pay any taxes on it. All the money in it will be tax free! How cool is that?

The Roth IRA was named for former Senate Finance Committee
Chairman William Roth, Jr. It was created by the Taxpayer Relief Act of 1997.

If you are a single filer and have a modified adjusted gross income (MAGI) up to $95,000 can make the full Roth IRA contribution for that year. For married couple couples, each spouse filing a joint federal income tax return showing a modified adjusted gross income up to $150,000 can make the full Roth IRA contribution for that year.
People with higher modified adjusted gross income may be able to make smaller contributions.

The maximum contribution amount for 2006 is $4000, with a catch-up provision for people 50 or older to contribute an extra $1000. These amounts will remain the same for 2007.

Let me know if this does not answer your question of how does a Roth IRA work.