What Is a Roth IRA ?
Roth IRAs are one of several types of individual retirement arrangements recognized by the IRS as vehicles to aid individuals in preparing for retirement. A Roth IRA is distinctive in that there is no up-front tax deduction. Instead, all earnings are tax exempt while in the account and when withdrawn after retirement in accordance with IRS rules.
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Eligibility
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Anyone who has earned income can open a Roth IRA. There is no maximum age as with traditional IRAs, and even minors may open a Roth IRA.
Contributions
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You may contribute up to $5,000 yearly (as of 2009) to a Roth IRA. If you are 50 or older, the maximum is $6,000.
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Withdrawals
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You must be 59 ½ years old and the account must have been open for at least five calendar years before earnings may be withdrawn from a Roth IRA.
Disbursement
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Contributions may be withdrawn from a Roth IRA at any time. IRS "ordering rules" don't consider withdrawals to be earnings unless withdrawals exceed the total amount of contributions.
Penalties
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Early withdrawal of earnings in violation of IRS rules subjects the earnings to regular taxes plus a penalty of 10 percent of the amount withdrawn.
Exceptions
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You may withdraw earnings early without penalty if you become disabled or to pay for the purchase or repair of a first home (up to a lifetime limit of $10,000).
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