The Basic Facts of a Roth IRA
A Roth IRA is similar to a traditional IRA, with some distinct differences. To keep more of your income at tax time, you may want the benefit of a tax-deductible traditional IRA. If you do not want to begin taking distributions at age 70 1/2, a Roth may be more suitable for you.
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Identification
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A Roth IRA is an individual retirement account into which you to make non-deductible contributions to save for your retirement. You may contribute to a Roth for 2010 until April 15, 2011. You must have earned income during a given tax year which is equal to or greater than your contributions.
Tax Advantage
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You fund a Roth with after-tax dollars, which are not tax-deductible. Therefore, your qualified withdrawals in retirement are tax-free.
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Contributions
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Individuals under 50 years old may generally contribute up to $5,000 per year into a Roth. If you are over 50, you can contribute up to $6,000.
Distributions
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If you hold your Roth account for at least five years, you may withdraw distributions of up to $10,000 tax free to use for a first-time home purchase even if you are under 59 1/2. Your withdrawals beginning at age 59 1/2 are tax-free. Unlike a traditional IRA, with a Roth IRA you do not have to begin taking required distributions at age 70 1/2.
Income Limits
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Depending on you filing status, your contribution to a Roth IRA may be limited based on your income. For example, a single person cannot contribute to Roth if her income reaches $120,000 for the tax year.
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References
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