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The Roth IRA is an exciting addition to your retirement account options adopted through the 1997 Tax Act. The pertinent features of the Roth IRA are:
Although you do not receive a present tax deduction for your Roth IRA contribution, withdrawals from your Roth IRA (if you meet all qualifying guidelines) are TAX FREE (regular IRA's are tax deferred).
Eligibility levels are: single filers - $101,000 Modified Adjusted Gross Income (MAGI) or less, a full $5,000 contribution plus a $1,000 catch-up contribution for those over 50, can be made (partial contributions until phase out at $116,000); married filers - $159,000 MAGI or less, a full $5,000 contribution can be made plus a $1,000 catch-up contribution for those over 50 (partial contributions until phase out at $169,000).
Original contribution amounts are treated as being distributed first. Thus, if you contribute $4,000 and it grows to $10,000 and you need to withdraw some money, you can take up to $4,000 out, tax and penalty free, no matter your age or how long you have had the account opened. Withdrawals of income earned are subject to certain rules.
You are never required to take distributions from your Roth IRA if you do not wish to, unlike Traditional IRAs which require distributions beginning at age 70 1/2.
You can pass a Roth IRA to your beneficiaries at death and they get it income tax free.
Traditional IRAs can be converted into a Roth IRA. For many people this is a terrific option that may lead to more dollars, or less income tax, at retirement.
There are many rules to the Roth IRA. Contact us to learn more about this fascinating investment option.
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