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Roth IRA

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 , on or after your disability or death, or for your first time home purchase ($10,000 limit).

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 or died
  • Because you are 59 or older
  • Used to pay for medical expenses in excess of 7.5% of   your adjusted gross income
  • 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 expenses
  • 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 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 as you do have to with a Traditional IRA.

 

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