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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.