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The Roth IRA
If you need a retirement plan with more flexibility than the Traditional IRA, the Roth IRA may be what you need. Though you generally need to wait five years, the Roth IRA allows you to withdraw funds (contributions only, not interest earned) to make a down-payment on a home, pay college tuition, pay for expenses related to a disability, and more. Also, because withdrawals from a Roth IRA after age 59 ½ are not usually taxed, the Roth IRA is fast becoming the more popular choice for many taxpayers.
This new IRA account allows up to $2,000 non-deductible deposits with all earnings being free of federal income tax if the money saved is on deposit for five years or more and used for a qualified purpose.
Qualified distribution reasons include:
Who can contribute? Married couples filing a joint tax return with MAGI* up to $150,000 Single tax filers with MAGI* up to $95,000 Couples and single tax filers with higher incomes may be eligible for reduced contributions. How much can I contribute? Total combined contributions to Roth and traditional IRAs up to $2,000/year of 100% of compensation, whichever is less.
Who can make deductible contributions?
No one can deduct contributions.
What are the tax advantages?
Contributions can be withdrawn tax- and penalty-free anytime. Earnings can be withdrawn tax-and penalty-free for any of these reasons after the account has been open five tax years: after age 59 ½, if you become disabled, or for first-time home purchase. Withdraw earnings penalty-free for the same reasons as those for penalty-free withdrawals from traditional IRAs (withdrawal is subject to taxes). Can I withdraw from the account?
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