Roth IRA

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Roth IRA

Individual Retirement Account that allows contributors to make annual contributions and to withdraw the principal and earnings tax-free under certain conditions. Maximum annual contributions are $3,000 per year (phasing up to $4,000 per year in 2005 and $5,000 per year in 2008.

Roth IRA

An investment retirement account in which a worker makes non-tax deductible contributions up to a certain limit throughout his/her working life. Unlike traditional IRAs, withdrawals are tax-free but contributions are not deductible. The limit to annual contributions varies by year according to inflation ($5,000 in 2008 and 2009). Roth IRAs are allowed to invest in securities and, in practice, normally own common stock and certificates of deposit. See also: 401(k).

Roth IRA

A special type of individual retirement account in which contributions are made with aftertax dollars but distributions are tax-free so long as certain requirements including holding period and age are met. All earnings within the account are free of taxation.
Case Study Roth IRAs allow an annual contribution to a retirement account, but unlike a regular IRA the contribution is never tax-deductible. Rather, distributions from a Roth IRA are generally tax-free, so long as certain criteria are met. Individuals and their spouses are eligible to invest in a Roth so long as their adjusted gross income meets stated guidelines. Tax-free withdrawals are permitted if the investor holds the account for at least five years from the date the account was opened and is at least age 59 1/2 . A tax-free withdrawal of up to $10,000 is permitted for a first-time home purchase so long as the required five-year minimum holding period is met. Distributions prior to age 59 1/2 are not taxable only with respect to contributions. In other words, you can always withdraw prior contributions without tax or penalty, a substantial advantage compared to a regular IRA. Withdrawals of interest are taxable and subject to a 10% penalty unless the money is withdrawn because of death, total disability, the purchase of a first home (up to $10,000), higher-education expenses, medical expenses in excess of 7.5% of adjusted gross income, or health insurance premiums for certain unemployed individuals.
Should I choose a regular IRA or a Roth IRA?

The hands-down favorite is a Roth IRA. Now, the money that goes into a regular IRA isn't taxed until withdrawal after age 59 1/2 A Roth IRA is funded with aftertax dollars, but no taxes are levied on the gains when the money is taken out during retirement. One way to look at the tradeoff is to decide whether you'll be in a lower tax bracket in your golden years. If so, you might want to lean toward the regular IRA. However, you will accumulate more savings in a Roth if your tax bracket remains the same or ticks up. The Roth carries other advantages that weigh heavily in its favor. Among them: With a regular IRA you must start withdrawing money at age 70 1/2 . Not with a Roth. You can take out aftertax contributions in a Roth free of tax and penalty (but not the gains) at any time and for any reason. The income eligibility requirements for a Roth IRA are more generous than for the traditional IRA. There are a number of calculators on the Internet for comparing the two products.

Christopher Farrell, Economics Editor, Minnesota Public Radio, heard nationally on Sound Money®

Roth IRA.

A Roth IRA is a variation on a traditional individual retirement arrangement (IRA).

Because contributions are made with after-tax dollars, the Roth IRA allows you to withdraw your earnings completely tax free any time after you reach age 59 1/2, provided your account has been open at least five years.

You may also be able to withdraw money earlier without penalty if you qualify for certain exceptions, such as using up to $10,000 toward the purchase of a first home. And since a Roth IRA has no required withdrawals, you can continue to accumulate tax-free earnings as long as you like.

You can make a nondeductible annual contribution, up to the annual federal limit, any year you have earned income, even after age 70 1/2, though you can never contribute more than you earn. If you are 50 or older, you may also make annual catch-up contributions.

To make a full contribution to a Roth IRA, your modified adjusted gross income (MAGI) must be less than the annual limit set by Congress.

You may make partial contributions on a sliding scale if your MAGI is between the amounts that Congress sets for your filing status. These annual limits are lower if you file as a single than if you're married and file a joint return.

You may also qualify to convert a traditional IRA to a Roth IRA if your MAGI in the year you convert is less than the cap, currently $100,000, which applies whether you are single or married. The amount you're converting is not included in that total.

Roth IRA

Contributions to Roth IRAs, which were introduced in 1998, are not deductible. Earnings grow tax free and qualified withdrawals are also tax free.
References in periodicals archive ?
Both traditional IRAs and Roth IRAs require distributions to be made to the designated beneficiaries of the IRA after the death of the original IRA owner.
Consider Roth IRA conversions: The ability to convert from a traditional IRA to a Roth IRA--regardless of income level starting in 2010--is another important planning opportunity in the Retirement Red Zone.
For tax years beginning after 2009, the new law eliminates this $100,000 modified AGI limitation on conversions of regular IRAs to Roth IRAs and also allows married individuals filing separately to make such conversions.
In determining whether the con version was worthwhile, the taxpayer needs to recalculate the incremental income tax liability using the current value of the Roth IRA as close to the October 15th deadline as possible.
Conversely, contributions to Roth IRAs and "converted" Roth IRAs are considered made with "after-tax" dollars and, consequently, the appreciation and income inside a Roth IRA grows tax-free.
The complex Roth IRA distribution rules apply to the aggregate of the client's Roth IRAs.
By combining a Roth IRA with a variable annuity's living benefit, individuals can arm themselves with a planning tool that offers more than a Roth IRA or traditional variable annuity could offer individually.
Before 2010, the Code limited the opportunity to convert a traditional individual retirement account (IRA) into a Roth IRA to individuals with adjusted gross income of less than $100,000 (not indexed).
Previously, investors with an adjusted gross income of more than $100,000 (filing individually or jointly) could not convert to a Roth IRA from a traditional IRA.
For tax purposes a taxpayer can only have one Roth Individual Retirement Account, regardless of how many physical Roth IRAs are maintained for contributed, converted or rolled over funds.
But folks who want to convert their traditional IRAs into Roth IRAs have to prepay taxes on the money.
com for investors who are seeking more information on Roth IRAs, including the IRA Evaluator (www.