Roth IRA…The Ultimate Retirement Tax Tool

Last week we discussed the IRA.  This week we'll talk about the Roth IRA.

Who is eligible for a Roth IRA?

  • You need to have earned income at least up to the amount of the contribution.
  • There is a phase out for Roth IRA's based on your Adjusted Gross Income.  In 2009, it is as follows:

Single:  $105,000 – $120,000
Married Filing Joint:  $166,000 – $176,000

The annual contribution amount to a Roth IRA is the same as an IRA―$5,000 per year.  For those over the age of 50, there is an additional $1,000 allowed as a "catch up" contribution.

What are the significant differences between an IRA and a Roth IRA?

  • Unlike the IRA, the Roth IRA is not income tax deductible.
  • If the Roth IRA account is open at least five years and the taxpayer is over age 59½ , all of the earnings are income tax free. With a traditional IRA the earnings are tax deferred, not tax free.
  • The Roth IRA is not subject to the Required Minimum Distribution rules.  These rules force taxpayers to begin taking distributions over age 70½.  Therefore, you are not required to take distributions from your Roth IRA, but your are required to take the minimum distribution with an IRA.

The Roth IRA is an awesome vehicle for retirement.  This is particularly true for younger taxpayers as they'll have many years of tax free growth.

Action Item:  Research if you are eligible for a Roth IRA.  If so, you have until April 15, 2010 to fund your 2009 Roth IRA.

 Thomas F. Scanlon, CPA, CFP

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4 comments on “Roth IRA…The Ultimate Retirement Tax Tool
  1. sorority says:

    Enjoyed the posts..

  2. There is obviously far more to know about it as I expected. I think you made a lot of good points in your article.