Roth IRA
What Roth IRA can do for an average tax payer?
The ingenious idea of Roth IRA plan can be credited to Senator William Roth Jr. from Delaware who became the chief sponsor through legislation for incepting and enacting the Roth IRA. Since 1998, many people have converted their traditional IRAs into a Roth IRA.
Roth IRA is not as much of a retirement plan as it is a tax plan. If one’s income limit is as decided by the IRS for the current tax year, then he can qualify for Roth IRA.
A fixed sum has to be deposited from the earned income annually. For the current tax year, people below 50 years of age can contribute up to $5000 annually while those who are 50 and above can contribute an additional $1000 making the contribution $6000 to catch up on the savings.
After 59 and half, the withdrawal including interest and earnings accumulated over the years can be withdrawn with the principal amount. Prior to that age, if one needs to withdraw, the principal amount can be withdrawn without taxes or penalty while the interest or earnings incur a substantial ten percent penalty along with federal and state level taxes.
The contribution is post tax so the withdrawals are tax free.
In addition to that, there are certain exceptional situations where the individual can withdraw the earnings along with contribution without penalties. Buying a home for the first time – the withdrawal can be made up to $10,000 in a lifetime. First time home owner is defined as someone who has not owned a home in at least 2 years.
Apart from this an account holder who has been permanently disabled or an individual who has been on unemployment benefits for at least 12 weeks to pay off his medical insurance premiums…etc.
Roth IRA is not as much of a retirement plan as it is a tax plan. If one’s income limit is as decided by the IRS for the current tax year, then he can qualify for Roth IRA.
A fixed sum has to be deposited from the earned income annually. For the current tax year, people below 50 years of age can contribute up to $5000 annually while those who are 50 and above can contribute an additional $1000 making the contribution $6000 to catch up on the savings.
After 59 and half, the withdrawal including interest and earnings accumulated over the years can be withdrawn with the principal amount. Prior to that age, if one needs to withdraw, the principal amount can be withdrawn without taxes or penalty while the interest or earnings incur a substantial ten percent penalty along with federal and state level taxes.
The contribution is post tax so the withdrawals are tax free.
In addition to that, there are certain exceptional situations where the individual can withdraw the earnings along with contribution without penalties. Buying a home for the first time – the withdrawal can be made up to $10,000 in a lifetime. First time home owner is defined as someone who has not owned a home in at least 2 years.
Apart from this an account holder who has been permanently disabled or an individual who has been on unemployment benefits for at least 12 weeks to pay off his medical insurance premiums…etc.
