Roth IRA Rules

Roth IRA Rules & Benefits

This page is somewhat for Roth IRA beginners. Examining basic Roth IRA rules and benefits will help you compare many different retirement plans.

If you've never had any retirement accounts before, comparing them will be very long story. Don't try to do it now. I'll do it for you somewhere around here.

If you master this powerful Roth IRA first,then you will certainly see the uniqueness.

Tax Benefits

A Roth IRA was established by the Taxpayer Relief Act of 1997 and named for the late Senator William Roth of Delaware. Since the introduction, it has become a very popular retirement tool because of its tax free growth feature. In contrast to a Traditional IRA, Roth IRA rules do not allow contributions to be tax deductible, but instead, if certain requirements are met, all earnings and withdrawals are tax free. Furthermore, you can withdraw money without the early distribution penalty. Surely, a Roth IRA gives you more flexibility for handling your long term investment.

Eligibility

Congress has limited who can contribute to a Roth IRA based on income. If you have qualifying income for the year, you can make contributions regardless of age. And you can still contribute even though you participate in a employer sponsored retirement plan such as 401k.

In 2009 and 2010, you can contribute as much as $5,000 ($6,000 if you're 50 or older). But it depends on your income level. If you're single and your income is less than $105,000, you can make a full contribution. If you're married, your joint income should be less than $166,000 for a full contribution. If your income exceeds the limit, the amount you can contribute will be phased out to zero.

Conversion rules

According to the Roth IRA Rules prior to 2010, you could convert from a Traditional IRA to a Roth IRA only if your income (Modified Adjusted Gross Income) was less than $100,000 in the year of the conversion. However, in 2010, you will be allowed to convert regardless of income. I'll tell you about the advantage of the conversion later.

Distribution & Withdrawal rules

As I mentioned above, the benefit of funding a Roth IRA instead of a Traditional IRA is the possibility of tax-free distributions. You may take your regular Roth IRA contributions (but not earnings) at any time for any purpose free of income taxes and penalty. Withdrawals of earnings are tax-free if you are over age 59 1/2(if not, other justification such as retirement or disability) and at least 5 years have elapsed since you established a Roth IRA.

Now, you are informed and need more details about a Roth IRA.

It's time to get started!!

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