Some Information On Roth IRA That You Must Have
If you are looking for a retirement plan then a lot of people might have told you about different old age social security schemes available in the United States. Some of them must have mentioned plans like IRA and 401k as well. Roth IRA is a part of IRA (Individual Retirement Arrangement) and is different from IRA (the plan). Roth IRA is very beneficial if you have appropriate information about it. Roth IRA was established in the year 1998 after the efforts of the US Senator William V. Roth Jr. It is necessary to have proper information on Roth IRA because Roth IRA is a radically different concept from other IRAs. The most significant information on Roth IRA that everyone needs to have is that the Roth IRA contribution is not tax deductible. You have to pay taxes for whatever amount you contribute towards your Roth IRA. On the other hand Roth IRA income is not taxed, so it all comes full circle. The USP of Roth IRA is that you can easily withdraw money from your account as and when you want (provided you meet the eligibility conditions). You can even empty the Roth IRA under some conditions. Interestingly, unlike other retirement accounts IRA does not have an age restriction for making contributions either.
Similarly you must also know about Roth IRA contribution limitations. The maximum contributions that can be made towards Roth IRA as of 2006-2007 is $4000. If your age is above 50, a special catch up mode allows contributions up to $5000. Further limitations also apply as per the Modified Adjusted Gross Income (MAGI) of the person. These are the limits on how much money you should earn in order to qualify for opening a Roth IRA account. If you are a single filer, your income must not be above $99,000 if you want to qualify for a full contribution, if your income is below $114,000 you can make partial contributions. For those people who are married and filing jointly the limits are up to $156,000 for a full contribution and for partial contribution the MAGI should not exceed $166, 000. These limitations are revised on annual basis to account for changing rates of inflation. Another important information of Roth IRA is that you have to pay heavy penalties if you want to withdraw the funds early and are not able to get a qualified distribution or if your account is not more than five years old at the time of making a withdrawal. Also remember that while the qualified withdrawals are considered tax free, an unqualified withdrawal of money from the Roth IRA means that you have to pay federal income tax as well as a 10% penalty. You can avoid the tax and penalty if you are withdrawing money from Roth IRA for a qualified exception (like purchasing your first house). Withdrawals after disability are also a qualified exception. |