BADFISH II
12-21-2006, 05:05 PM
IF YOU'RE NOT FUNDING YOUR ROTH IRA'S YOU'RE MISSING THE BOAT! LISTEN UP MY BOATING BRETHREN - STICK THE MONEY IN A ROTH IRA PLAN NOW!
Everything you wanted to know about a ROTH IRA but were afraid to ask:
Coverage under a retirement plan maintained by your employer does not affect your ability to contribute to a Roth IRA - THE GOOD NEWS! You can max out your 401k plan, your spouse can, and STILL access the AMAZING benefits of a ROTH IRA!
ROTH contributions are from AFTER-TAX dollars - there is NO TAX BREAK UP FRONT. BUT, say you contribute 1K to a ROTH - you may save $300 in taxes now if it was a 401k or other deductible IRA contribution, however you'll pay a LOT MORE in taxes later when you pull it out after it's grown and grown for decades! Forget the $300 now - take the tax FREE money later out of the ROTH!
For 2006 to 07 the contr. max is $4,000 - for 08 that goes up to $5,000. That max is the max for ALL IRA types (like if you have a regular IRA and make a contr. to it too, it counts towards your TOTAL IRA contr. of $4,000, etc.)
Unlike regular IRA's, you can contribute to a ROTH after age 70.5 and there is no RMD (required minimum distribution) for a ROTH - so it's a great estate planning tool. You get NO tax break up front with the ROTH, as it's funded with AFTER TAX DOLLARS.
All interest, dividends, and cap gain income INSIDE the ROTH account grow tax deferred and if you follow the rules may be COMPLETELY tax free upon withdrawal. Just make sure the money is in there for at least 5 years and you're over 59.5 to be "within the applicable rules".
If you're over 50 (this is for you HH - you can contribute TOO!) - you CAN contribute an EXTRA $1,000 to your ROTH IRA for 2006 and forward - that's called the "Catch Up" contribution.
You can make a ROTH contr. if:
Filing Single - income (modified agi) is 95K or less (phased downwards for income up to $110,000 where the ability to make a ROTH contr. is GONE!)
Filing Married - income (modified agi) is $150,000 or less for full contributions (amount is phased down up until income limit of $160,000 where you can't contribute).
For this to work for you, distributions must be "Qualified Distributions" - meaning you must be at least 59.5 and the money must be in the plan for 5 years OR a 10% penalty applies in addition to the taxes that would be owed ONLY on the growth/appreciation of the account (NOT on the original AFTER-TAX contribution if that was withdrawn). Good recordkeeping is key here! AND DON'T TAKE MONEY OUT IN A YEAR TO GO BUY A NEW BOAT!
There are a few other exceptions to the 10% penalty, but most people won't ever deal with those.
I hope this helps shed some light on the ROTH IRA deal, and I hope you all make ROTH IRA contributions for 2006 and 2007 and beyond!
G
Everything you wanted to know about a ROTH IRA but were afraid to ask:
Coverage under a retirement plan maintained by your employer does not affect your ability to contribute to a Roth IRA - THE GOOD NEWS! You can max out your 401k plan, your spouse can, and STILL access the AMAZING benefits of a ROTH IRA!
ROTH contributions are from AFTER-TAX dollars - there is NO TAX BREAK UP FRONT. BUT, say you contribute 1K to a ROTH - you may save $300 in taxes now if it was a 401k or other deductible IRA contribution, however you'll pay a LOT MORE in taxes later when you pull it out after it's grown and grown for decades! Forget the $300 now - take the tax FREE money later out of the ROTH!
For 2006 to 07 the contr. max is $4,000 - for 08 that goes up to $5,000. That max is the max for ALL IRA types (like if you have a regular IRA and make a contr. to it too, it counts towards your TOTAL IRA contr. of $4,000, etc.)
Unlike regular IRA's, you can contribute to a ROTH after age 70.5 and there is no RMD (required minimum distribution) for a ROTH - so it's a great estate planning tool. You get NO tax break up front with the ROTH, as it's funded with AFTER TAX DOLLARS.
All interest, dividends, and cap gain income INSIDE the ROTH account grow tax deferred and if you follow the rules may be COMPLETELY tax free upon withdrawal. Just make sure the money is in there for at least 5 years and you're over 59.5 to be "within the applicable rules".
If you're over 50 (this is for you HH - you can contribute TOO!) - you CAN contribute an EXTRA $1,000 to your ROTH IRA for 2006 and forward - that's called the "Catch Up" contribution.
You can make a ROTH contr. if:
Filing Single - income (modified agi) is 95K or less (phased downwards for income up to $110,000 where the ability to make a ROTH contr. is GONE!)
Filing Married - income (modified agi) is $150,000 or less for full contributions (amount is phased down up until income limit of $160,000 where you can't contribute).
For this to work for you, distributions must be "Qualified Distributions" - meaning you must be at least 59.5 and the money must be in the plan for 5 years OR a 10% penalty applies in addition to the taxes that would be owed ONLY on the growth/appreciation of the account (NOT on the original AFTER-TAX contribution if that was withdrawn). Good recordkeeping is key here! AND DON'T TAKE MONEY OUT IN A YEAR TO GO BUY A NEW BOAT!
There are a few other exceptions to the 10% penalty, but most people won't ever deal with those.
I hope this helps shed some light on the ROTH IRA deal, and I hope you all make ROTH IRA contributions for 2006 and 2007 and beyond!
G