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Share Accounts :: Individual Retirement Accounts Roth IRA's • Is investing for retirement important? Concern regarding the long term viability of Social Security continues to grow, and Americans are looking for new ways to secure their financial future. The Roth IRA gives you the ability to invest your after-tax dollars today, let the investment grow tax-deferred, and withdraw your principal and earnings tax-free after five years. (For certain reasons you may be subject to a 10 percent penalty on the earnings if taken before age 59 1⁄2.) Is investing for retirement important? Many ideals are changing in today's society. For instance:
Individuals need to take the lead in building their retirement nest egg. What makes the Roth IRA so unique? Imagine for a moment that you have just received a paycheck. You look at your summary and notice that no federal income taxes have been withheld. Your initial reaction is that something is wrong. It's not, if this check is from your Roth IRA. Two factors make this possible:
Unlike the Traditional IRA, there is no 701⁄2 age limit on making contributions. You simply need to have earned income equal to the amount you contribute up to a maximum amount set each year. Single tax filers may contribute up to the maximum allowable per year if their modified adjusted gross income (MAGI) is less than $95,000. If a single tax filer's MAGI is between $95,000 and $110,000, they may contribute a reduced amount adjusted for their income. Married couples filing jointly may each contribute up to the maximum allowable if their MAGI is less than $150,000. Contributions for joint filers are reduced for MAGI's between $150,000 and $160,000. Roth IRA contributions may not be made by single tax filer's with MAGI of more than $110,000, or couples with MAGI of more than $160,000. For 2001, the annual contribution limit for a Roth IRA was $2,000 ($4,000 for married couples) or 100 percent of earned income, whichever is less. EGTRRA increases annual contribution limits as follows:
Beginning in 2009, the maximum contribution amount will be indexed for cost-of-living adjustments (COLA) in $500 increments. What is an IRA catch-up contribution? Effective for tax years beginning on or after January 1, 2002, individuals who attain the age of 50 before the end of the taxable year may be eligible to contribute an additional amount to a Traditional and/or Roth IRA as a catch-up contribution as follows:
When can I use my Roth IRA assets? If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, your Roth IRA must have been open for a minimum of five years. Second, the withdrawal must be made because of the occurrence of one of the following events:
Distributions which meet the above requirements are referred to as "qualified distributions." While you may take distributions from your Roth IRA at any time, distributions which are not qualified distributions may be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs. Can I move money from my Traditional IRA to my Roth IRA? The answer is "Yes." There are specific rules that govern the process of rolling over or converting funds from a Traditional IRA to a Roth IRA. Some of these rules include the following:
You should seek advice from a competent tax advisor to determine whether moving your funds is beneficial to you. Am I ever required to take funds from my Roth IRA? Unlike the Traditional IRA, there are no required minimum distributions at age 701⁄2. Your earnings can continue to grow until you need them. There are special requirements when these plans pass to your beneficiaries. For more information on the benefits of the new Roth IRA, ask one of our representatives for details today. Traditional IRA's | Coverdell Education Savings Accounts | Learn About IRA's
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