One of the more high profile changes brought on by the Taxpayer
Relief Act of 1997 was the Roth IRA, introduced by Republican
Senator William Roth Jr. from Delaware. With a Roth IRA, your
earnings compound without annual taxation and, when you retire,
withdrawals are tax-free.
The Roth IRA has had the following features: (check with www.irs.gov and your tax advisor for current and complete information)
- Roth IRA contributions are not tax deductible.
- You can contribute up to $4,000 a year to a Roth. ($4,500 if you're 50 or older by the end of the year)
- You can only open a Roth if you earn less than $95,000
($150,000 for joint filers).
- After youve owned your Roth IRA account for 5 years
or more, you may take out money for certain qualified expenses
without having to pay an early withdrawal penalty.
Qualified expenses include buying a first home; paying
for qualifying medical expenses, health insurance premiums,
and disability costs, college costs, and passing the age of 59½.
- You are not required to begin taking contributions at
- You can continue contributing up to $4,500 per year of
earned income past age 70½.
- You can withdraw contributions tax-free at any time, however your earnings may have to stay in until you're 59½ and have satisfied the five-year requirement.
You might consider a Roth IRA if:
- You do not need your funds for at least 5 years.You want
to work and contribute income to your account past age 70½.
- You anticipate needing your money for a qualified reason
before age 59½.
- You expect to be in a high tax bracket during retirement.
- Youre looking to build a tax-free inheritance for
- Youve never before qualified for tax deductions
on regular IRA contributions.