One of the main reason
people choose the Roth IRA instead of the Traditional IRA is that once
you have had the Roth IRA account for five years, withdrawals are free
from Federal Taxes that are made after age 59 ½, on or after your
disability or death, or for your first time home purchase ($10,000
As long as you have earned income. you can contribute up to $4,000
annually ($4,500 if age 50 or older) to a Roth IRA. Contributions are
not tax deductible as they would be in a Traditional IRA.
In addition, the 10% early withdrawal penalty is waived but not the
income taxes for the following situations.
- Because you became disabled
- Because you are 59 ½ or
- Used to pay for medical
expenses in excess of 7.5% of your adjusted
- Used to pay for health
insurance premiums after you've been receiving unemployment
compensation for a certain period of time
- Taken in a series of
substantially equal periodic payments
- Used for higher education
- Used for a first-time home
purchase (up to $10,000)
One of the other benefits of the Roth IRA account is that there is No
Age Limit. Contributions can continue even after the regular IRA limit
of age 70 ½ as long as you have at least $3,000 in earned income. Once
you decide to take your distribution, it is all Federal Income Tax Free.
The full $4,000 Roth IRA contribution may be made by single taxpayers
with modified gross incomes of less than $95,000 and married individuals
filing jointly with incomes below $150,000.
The Roth IRA is a great way to generate Tax Free retirement income while
allowing flexibility in deciding when you want to take that income,
since you do not have to take a Required Minimum Distribution at age 70
½ as you do have to with a Traditional IRA.