Roth IRA

What is it?
A Roth IRA is a type of investment that allows you to pay taxes now and get tax-free withdrawals in the future. This is nice, because taxes will probably just keep rising and rising.

What are the Advantages of a Roth IRA?
Source: about.com

* Contributions can be made after age 70 ½ (unlike the age limitation of a traditional IRA)

* Eligible individuals may contribute up to a specified limit annually

* Contribution eligibility is not restricted by active participation in an employer’s retirement plan

* Withdrawals of earnings upon death or disability, for first time home-buying or after age 59 ½ are tax-free provided a 5 year wait has occurred

What are the Disadvantages of a Roth IRA?

* Premature withdrawals in excess of contributions are fully taxable and are also subject to a 10% penalty

* Contributions are limited each year for each individual

Maximum contributions limits are the lesser of the annual dollar limit of the table below or 100% of earned income less contributions to traditional IRAs.

You cannot contribute if...
Source: about.com

Single:

If your income tax filing status is single, your Roth IRA contribution limit is reduced when your adjusted gross income is more than $95,000. Your contribution limit is zero when your adjusted gross income reaches $110,000.

Married Filing Jointly:

Married person's filing jointly will have a reduced contribution limit for each persons Roth IRA if their adjusted gross income exceeds $150,000. If their adjusted gross income reaches $160,000, each persons contribution limit is zero.

Married filing separately and living apart:

If you are married but file separately and have lived apart from your spouse for the entire tax year, your Roth IRA contribution amount will be reduced if your adjusted gross income is more than $95,000. You Roth IRA contribution limit will be eliminated if your adjusted gross income reaches $110,000.

Married filing separately and lived with your spouse:

If you are married filing separately and lived with your spouse at any time during the tax year, your roth IRA contribution amount will be reduced when your adjusted gross income exceeds $0.00 and will be completely eliminated when your adjusted gross income reaches $10,000.


Related topics
Roth limits