If your income is below $ 110,000 (single) or $ 160,000 (married and filing jointly), you can contribute $2,000 a year to a Roth IRA — and this contribution is permitted even if you participate in other pension or profit-sharing plans. The Roth IRA, introduced in 1998, offers the benefit of tax free withdrawals (if you are 591⁄2 and the account has been held at least five years). If you choose a Roth IRA, your $2,000 contribution comes out of income you’ve already paid taxes on (that is, earnings). That’s very different from the traditional IRA, in which your contribution may come from pretax earnings.
Like a traditional IRA, the funds contributed to a Roth IRA accumulate tax-free. The big difference is that if you are 591⁄2 and have held the Roth IRA for five years, you never pay tax on the money you withdraw. That means that the earnings on the $2,000 you contribute annually are tax-free.
If your income is more than $ 110,000 and you’re single, or if you’re married and you and your spouse have a combined income of over $160,000, you’re not eligible for a Roth IRA. Another advantage of the withdrawal requirements of a Roth IRA is that you’re not required to take your money out of a Roth IRA when you reach 701⁄2 as you are with traditional IRAs. In fact, you can leave the money and all the earnings to your heirs, if you want to. This allowance enables you to control the timing and the pace of your withdrawals from the account, potentially allowing the funds to stay there, growing tax-free, for more years.
Investors can contribute to both a traditional IRA and a Roth IRA; however, the total contribution to the two accounts can’t exceed the $2,000 annual limit. Many financial advisors say that if you are young and in a low tax bracket, you should probably open a Roth IRA and fund it with the full $2,000 every year. For most people, it’s not worth debating over the two because only those who have relatively low incomes or no other active retirement plans can take advantage of the deductibility of the traditional IRA.
Like a traditional IRA, the funds contributed to a Roth IRA accumulate tax-free. The big difference is that if you are 591⁄2 and have held the Roth IRA for five years, you never pay tax on the money you withdraw. That means that the earnings on the $2,000 you contribute annually are tax-free.
If your income is more than $ 110,000 and you’re single, or if you’re married and you and your spouse have a combined income of over $160,000, you’re not eligible for a Roth IRA. Another advantage of the withdrawal requirements of a Roth IRA is that you’re not required to take your money out of a Roth IRA when you reach 701⁄2 as you are with traditional IRAs. In fact, you can leave the money and all the earnings to your heirs, if you want to. This allowance enables you to control the timing and the pace of your withdrawals from the account, potentially allowing the funds to stay there, growing tax-free, for more years.
Investors can contribute to both a traditional IRA and a Roth IRA; however, the total contribution to the two accounts can’t exceed the $2,000 annual limit. Many financial advisors say that if you are young and in a low tax bracket, you should probably open a Roth IRA and fund it with the full $2,000 every year. For most people, it’s not worth debating over the two because only those who have relatively low incomes or no other active retirement plans can take advantage of the deductibility of the traditional IRA.
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