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What's Up With the Roth IRA?
So what’s the hype
around the Roth IRA? If you follow the rules, the value of your account will grow
tax-deferred and the distribution of your money will be tax free! That’s right, tax
free! Do you have a problem with that? We didn’t think so. No one we know wants to
pay Uncle Sam anymore than necessary, yet many people do not have Roth IRAs. Keep these
rules in mind, then ask your consultant whether a Roth IRA is right for you.
 | 1st: If you are single
making $95,000 AGI (adjusted gross income) or less, the Roth IRA account may fit nicely
into your financial plans. If you file jointly and together you make $150,000 AGI or less,
you will want to consider fully funding this account.
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| 2nd: You can contribute up
to $2,000 or 100% of your earned income (whichever is less) if you meet the income
requirements. Unlike the Traditional IRA, you can disburse the money you’ve
contributed (not the earnings) at any time without penalty. Earnings are not to be
disbursed before age 59 1/2 unless you are unable to earn an income due to a disability;
you are using the money for a down payment on your first home; or you are using the money
for legitimate higher education purposes (you will avoid the penalty, but you will be
taxed).
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| 3rd: You can fund your
account with cash, mutual funds, stocks, bonds, etc. Often people will go from bank to
bank, institution to institution comparing returns on Roth IRAs. If you are investing for
growth (stocks or stock mutual funds), you cannot compare the future returns of one
account against another because there is no guarantee what your returns will amount to.
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| 4th: If you are thinking
about converting your Traditional IRA to a Roth IRA, consider your present tax bracket and
your ability to pay the taxed owed on the conversion from money outside your account. |
There are a few other
rules that are best discussed with your particular financial situation in mind. We
encourage you to learn more about the Roth IRA before deciding that it’s not anything
you need. Given that most people in the U.S. make less than $95,000 AGI, there is a chance
that this account might be right for you. |
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