For people who qualify, a Roth IRA is an excellent investment vehicle in which contributions do not have to end after retirement. As of 2010, the number of people eligible for this investment account will increase dramatically, as the minimum income bar has been raised.
What are the roth ira qualifications?
To be eligible as of 2010, the maximum combined income for a married couple can be no greater than $167,000 on a joint return; for an individual to qualify, the adjusted gross income can be no greater than $105,000. The minimum amount to be eligible is a taxable income of $5,000 a year.
Other considerations are the minimum and maximum amounts to be invested. To maintain the account, the minimum initial investment for the year 2010 is $500, with continuing $100 dollar a month minimums; the maximum allowed is $5,000 per year for 2010, plus $1,000 a year for people over the age of fifty.
From Traditional to Roth
Many owners of traditional IRAs are also converting to the Roth. Benefits include tax free earnings with no set age at which the individual is required to begin taking distributions. As the law currently stands, the money can continue to grow – tax free – indefinitely.
However an IRA contribution is a write off, while one to a Roth account is not. Also, people converting their IRAs will be taxed on the money taken out. Depending on the individual’s age, this is an important consideration.
Someone nearing the minimum distribution age has little to gain from leaving the money in a traditional individual retirement account if they have alternative income to live on, but if this is not the case conversion at a late age may mean a tax loss not easy to recover from, and less money for their retirement.
The question to ask before converting an IRA is, will the long term earnings accumulated in a Roth IRA make up for the initial taxes paid on it? There are no guarantees this will happen, but according to estimates, continued larger contributions to a Roth account should outpace IRA earnings even after the conversion is made.
Tax Considerations
The biggest benefit of an individual retirement account is the tax-deferred earnings, and with a Roth, those earnings can be withdrawn tax free. Convert from a traditional IRA, and the earnings potential is increased because a person can contribute more of their income. New laws have made this easier, allowing half of the tax from conversions to be paid in 2011, and the other half in 2012.
If married couples are earning less than $167,000 of combined income, or a single person earns less than $105,000, they have met the roth ira qualifications. With only the initial investment taxed, the Roth is a smart choice. However, there are exceptions. If a person is considering a conversion from their traditional retirement account late in life, or expects to be in a significantly lower tax bracket, the advantages and disadvantages of switching to the Roth should be carefully considered.
Looking for Something? Search here:
(examples: auto, banking, college, credit cards, debt, frugality, insurance, investing, loans etc.)
