Roth IRA Accounts
What is a Roth IRA?
Roth IRA's have become an important planning tool. Relatively new to the investment world, the Roth IRA provides numerous benefits to investors.
The Roth IRA provides unique, tax-advantaged way for investors to save for
retirement. Roth IRA contributions are not tax deductible. Roth IRA withdrawals, however, are
tax-free - as long as they are made after age 59 and the account has been in
existence for at least five years. Earnings in a Roth IRA compound free of
taxes with no future income tax consequences.
Roth IRA Advantages
One benefit of Roth IRAs is that they can provide a tax-free source of retirement income. Contributions to a
Roth IRA are not deductible, however, withdrawals - including any earnings - are
generally free from federal income taxes. Roth distributions are tax-free if you
begin withdrawals at least five years after establishing the account, and you
are at least age 59 at the time of the withdrawal. Some additional ways to receive tax free funds from your Roth IRA is if you are using the funds
for the purchase of a first home or you are disabled or deceased.
Another great advantage of Roth IRAs is that they allow you to make contributions
after age 70. This is different from the traditional IRA, from which you are required to take distributions at age 70 1/2.
Contribution Limits for Roth IRAs
The chart below shows total annual contribution limits for all types of IRAs.
Your total annual contribution to all IRAs (including
Traditional IRAs) may not exceed the lesser
of: your age-based limit or 100% of your earned income.
|
Year |
Below Age 50 |
Age Over 50 |
| 2005 |
$4,000 |
$4,500 |
| 2006 |
$4,000 |
$5,000 |
| 2007 |
$4,000 |
$5,000 |
| 2008 |
$5,000 |
$6,000 |
IRA Adjusted Gross Income (AGI) Limits
There are limits regarding who can contribute to a Roth IRA. One limit is based on the amount of your income. For single filers, the AGI limit is up to $95,000 for 2006 and $99,000 for
2007 ($95,000-$110,000 in 2006 and $99,000-$114,000 in 2007 for a partial
contribution)
For joint filers, the AGI limit is up to $150,000 for 2006 and $156,000 for 2007
($150,000-$160,000 in 2006 and $156,000-$166,000 in 2007 for a partial
contribution).
Roth IRA Conversions
You may convert a traditional IRA to a Roth IRA in any year your AGI doesn't
exceed $100,000, provided your tax status is not "married filing separately."
However, the amount you convert from a traditional IRA to a Roth IRA is
generally considered part of your taxable income for the year of conversion.
You may incur this penalty if you subsequently withdraw converted funds
from the Roth IRA before age 59 and sooner than five years after establishing
your Roth IRA.
Contact a financial professional
or tax adviser for more detailed information on IRA conversion-related issues.
Many investors have both a
traditional IRA and a Roth IRA and can contribute to either or both accounts each year.
retirement-planning/ira-accounts/Fidelity-Advisor-Roth-Contributions-Right-for-You-Atlantic-Financial-828822.PDF
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