A Roth IRA is a fairly new option for the astute investor. Although there is no tax advantage to using a Roth IRA at the time of the investment; some of the Roth IRA withdrawal rules include no taxes due at the time of your Roth IRA withdrawal as long as investor is 59 1/2 years old and the IRA contribution is over five years old. This is a wonderful wealth builder when you compare Roth IRA VS 401k. It does not need to be withdrawn at a certain age (or at all, for that matter) and contributions can continue as long as there is earned income. The Roth IRA is a wonderful avenue for investing in the future and keeping all the gains to oneself. These are easy to open, invest in and withdraw from. Recent laws allow you to complete a 401k rollover to Roth IRA if you’re interested in that as well.
A Roth IRA can be opened at a bank or any investment brokerage. Most people invest in stock, CDs or the currency market. People can also invest in real estate and collectibles like antiques, coins, gem, rugs and artwork. This process is a little more complicated and requires more paperwork. A typical Roth IRA can be opened quickly with minimal effort and time.
The Roth IRA qualifications state the maximum contribution per year is $5,000 per person; a couple could invest $10,000. People aged 50 years or older are closer to retirement and are allowed to invest $6,000 per year each. This amount can be split between a traditional IRA and a Roth IRA; many people maximize matching funds from an employer and contribute any difference into a Roth IRA.
A contribution to this IRA must be from earned income which are classed as wages paid or income from self-employment. Money received from interest and dividends does not count. In addition people making too much money only qualify for a reduced contribution, or may not be allowed to contribute anything. A single person can contribute the maximum amount of money as long as they make less than $105,000 a year. A reduced contribution comes into effect between $105,000 a year up to $120,000 a year. They are not allowed to contribute anything if they make more than $120,000 a year. A married couple filing jointly can contribute the maximum amount as long as they make under $166,000 a year. They are allowed to contribute a reduced rate between $166,000 and $176,000 and nothing if their earnings are over $176,000. These dollar amounts are adjusted for inflation and do change from year to year; it is a wise idea to check with a tax accountant before making any decisions.
An investor can initiate a Roth IRA withdrawal at the age of 59 1/2 without penalty if the funds have been in the IRA for over five years. There is no age an investor needs to start drawing these funds; there is no penalty if these are not withdrawn. Likewise an investor can continue to contribute to this account as long as he or she has earned income to do so, even at the age of 80 or 105.
This IRA is a great way to put aside money for retirement that will not be taxed when it is used and the Roth IRA Qualifications are generally easy to meet. As always, check with your account manager or another professional when investing. Qualifications for an inherited IRA may be different as well.