Roth IRA
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Roth IRAs may appeal to investors who believe they will be in a high
tax bracket when they retire. Although somewhat more complicated
than traditional IRAs, Roth IRAs have unique features that make them
very attractive to some investors. |
A major difference between
Traditional IRAs and Roth IRAs is that in a Roth IRA, your contributions grow in a tax-free account that allows you
to take out distributions that are free of income taxes, as long as
you abide by the rules.
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The tax-free distribution feature is one of the main differences
between a Roth IRA and a traditional IRA.
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A Roth IRA allows your contributions and earnings to grow in a
tax-free shelter. When you are ready to take distributions from the
plan, the money comes free of income taxes as long as you follow the
rules. |
Unlike
Traditional IRAs, contributions to Roth IRAs are not deductible from
your current income tax. Under
certain circumstances, you can convert a Roth IRA to a Traditional
IRA. Contributions may
be made up until the date your income taxes are due that year.
However, the earlier you fund an IRA, the sooner it can start
working for you.
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Contribution
Limitations:
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 The
contribution limits are the same as with Traditional IRAs, up to
$5,000 per year
through 2009. |
Taxpayers age 50 or older have a special catch-up period that
allows them to
contribute an additional $1,000 per year, making the
contribution limit $6,000 for
2009.
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Contribution
Limitations (Income): |
Married individuals filing jointly may contribute $5,000 ($6,000 if
50 or older) to a
Roth IRA only if their modified adjusted gross
income (MAGI) is less than
$166,000.
If their MAGI is between $166,000 and $176,000, they can
contribute
a lesser amount than the full limit.
Also, if the MAGI exceeds $176,000, they are
not eligible to
contribute to a Roth IRA for 2009. |
Single individuals may contribute $5,000 ($6,000 if 50 or older) to
a Roth IRA only
if their MAGI is less than $105,000.
If their MAGI is between $105,000 and
$120,000, they can
contribute a lesser amount than the full limit.
Also, if the MAGI
exceeds $120,000, they are not eligible to
contribute to a Roth IRA for 2009. |
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Your contributions and earnings grow in a tax-free account until you
begin withdrawals – usually not before age 59½. You can withdraw
your contributions at any time without tax or penalty. However, in
most cases, the IRS imposes a 10 percent penalty on withdrawal of
earnings before the age of 59½ if the account has been opened fewer
than five years.
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You can make an early (before age 59½) withdrawal if you use the
money for the
purchase of a first home or to cover college costs and
the account has been in
existence for five years. |
You can contribute to an IRA up until the date your income taxes are
due for that
year. However, the sooner you fund an IRA, the sooner
it can start working for
you. |
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You never have to take distributions. |
You can contribute to a Roth IRA if your modified adjusted gross
income is below
$110,000 (single) or $160,000 (joint). Allowed
contributions begin to phase out at
$95,000 (single) and $150,000
(joint). |
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You can, under certain circumstances, convert a Traditional IRA to a
Roth IRA. |
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