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Roth IRA

Roth IRA – Tax-free growth plan for your money

Another type of self-employment retirement plan is the Roth IRA. There is no current income tax deduction for your contribution but you could feel thrilled about the tax-free growth once the money is in the plan. Yes, you don't owe any tax when you take out the money. Quite the opposite of the traditional IRA.

With a Roth IRA even though contributions are not tax deductible, you don't have to worry about a mandatory distribution age. Also, all earnings and the principal amount are 100 per cent tax free in a Roth IRA if you follow the regulations. You could also purchase funds as several investment tools like bonds, certificates etc. You could also withdraw the principal contribution without any penalty subject to basic conditions.

How to set up a Roth IRA?

You could set up a Roth IRA with the help of any financial institution. Your provider might have a minimum-amount limit though the government does not have any such limitation. Compare the fees different institutions are charging for handling your Roth IRA and then choose the best.

Are there income limits for the Roth IRA?

There are income limits for a Roth IRA that you would need to comply with. That is irrespective of whether you or your spouse has another retirement plan. Also the maximum Roth IRA contribution depends on your age.

What are the 2011 Roth IRA income limits for married couples?

During 2011, married individuals who file jointly can contribute the maximum to a Roth IRA only if their modified adjusted gross income (MAGI) is below $169,000. If their MAGI is between $169,000 and $179,000, then they can contribute some amount less than their full limit. If their income exceeds $179,000, they are not eligible to contribute to a Roth IRA for 2011. This income range increased by $2,000 from 2010, as this phase-out range was $167,000 to $177,000.

What is the 2011 Roth IRA income limits for singles?

For single individuals, the 2011 Roth IRA phase-out limit is $107,000 to $122,000. An individual with a MAGI of $100,000 can contribute the maximum to his Roth IRA while someone with a $125,000 MAGI cannot contribute at all. A single individual's 2010 Roth IRA income limit range was from $105,000 to $120,000.

What is the tax rule for Roth IRA?

You do not get any income tax deduction when you put money in the Roth IRA but you could withdraw all the money 100 per cent tax free at the time of retirement. There is a 10 per cent penalty on withdrawal of earnings though none on withdrawal of principal amount. However, there are some exceptions for which this penalty is waived off. These exceptions include: permanent disability of IRA owner, death of the account owner, if withdrawals are used for paying non-reimbursed medical expenses, for paying first-time home purchase, higher education costs, paying taxes after a levy, medical insurance premiums, withdrawals made on or after the day the owner turns 59 years and six months old. However, an account holder has to wait for five tax years before these exceptions are considered.

       Traditional IRA                                      SEP IRA

       SIMPLE IRA                                         SIMPLE 401K

       Keogh                                                   Solo 401K

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