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ROTH IRA

A Roth IRA account is NON-deductible Individual Retirement Account where after tax money is contributed. But real gem is earnings on your contribution are TAX-FREE after your retirement.

Account can be opened at any bank or broker (like Fidelity, E*TRADE Wells Fargo, etc).


Eligibility:

You are eligible, when your modified AGI (defined later) is less than:

         $160,000 for married joint or qualifying widow(er),

         $110,000 for single, head of household or married filing separately and you did not live with your spouse at any time during the year.

Contribution limits:

Year

Age <= 49

Age >= 50

2005

$4000

$4500

2006/07

$4000

$5000

2008

$5000

$6000

 

Advantages:

  • Earnings (gains, interest, dividends) are tax free after retirement.
  • Contribution can be taken out any time without penalty.
  • Typically better than traditional ira in long run (20-30 years) as gain becomes more than contribution.


Disadvantages:

  • Non deductible contribution
  • Less money invested (post tax money) compared to Traditional IRA.
  • One must live till retirement o enjoy the benefit of Roth IRA.

  
SPOUSAL ROTH IRA

One can contribute to a Roth IRA for your spouse typically spouse is not working. There are some limits like married filing jointly and modified AGI is less than $160,000.

 

Additional Resources:

Official and detail information about Roth IRAs can be found in this Publication 590.

 

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