Roth IRAs

Roth IRA was established on January 1, 1998, mainly to help the middle class save without paying taxes. Contributions to the Roth IRA are not deductible, but distributions (including earnings) can be tax free if certain circumstances exist. It was named after Senator William Roth, who was very instrumental in its creation.

Eligibility for contributing to Roth IRA depends on an individual’s (or, if married, the individual and his/her spouse’s) modified adjusted gross income (MAGI).
An eligible individual may contribute a maximum of $4,000 or 100% of the earned income per annum to a Roth IRA.
The deadline for Roth IRA contribution is the same as the Traditional IRA (usually April 15), not including any extensions.
The maximum contribution for each qualified individual in 2007 tax year is $4,000 and for 2008 tax year is $5,000 with a $1,000 catch up after the age of 50.

A Roth IRA holder, whose contribution exceeds the allowable amount in a given year, is subject to 6% penalty. But this could be avoided if the holder removes the excess contribution or wishes to treat it as current year’s contribution and still pays a limited tax and penalty.*

Withdrawals are tax-free if withdrawn at age 59 ½ or later. Federal Government requires withdrawals beginning at the age of 70 ½. These are considered Required Minimum Distributions (RMD).*

FAQs

Q: How much can I contribute to a ROTH IRA each year?
A: A single individual with income of less than $99,000 (for 2007 tax year) and $101,000 (for 2008 tax year) may contribute up to $4,000 (for 2007 tax year) and up to $5,000 (for 2008 tax year) to a Roth IRA per annum. A single individual earning between $99,000 and $114,000 (for 2007 tax year) and $101,000 and $116,000 (for 2008 tax year) may make a partial contribution to a Roth IRA annually. *

Q: What if I’m married?
A: Married individuals with joint MAGI of less than $156,000 (for 2007 tax year) may contribute $4,000 each to a Roth IRA annually. Married couples with earnings between $156,000 and $166,000 (for 2007 tax year) and $159,000 and $169,000 (for 2008 tax year) may make a partial contribution to a Roth IRA annually based upon actual earnings. But those couples with earnings exceeding $166,000 (for 2007 tax year) and $169,000 (for 2008 tax year) may not contribute to a Roth IRA at all.*

Benefits

Retirement savings with excellent dividend rates
Tax free dividends and withdrawals after age 59-1/2*
The Roth IRA is a non-deductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period.*
Roth IRA contributions are non-deductible and taxed in the year they are earned.*
Members who expect to be in a higher tax bracket when they retire may benefit more from these accounts than from a traditional IRA.*

*Please see your tax advisor for any tax law considerations.