Dec 8

It’s unbelievable how little people know about Roth IRAs and other retirement investment options. In order to maximize your benefits and returns, it is important to learn the basics of what IRAs are about and which account would benefit you most. Roth IRA rules are simple and straightforward so in order to determine whether you are eligible or not, learn the rules and weigh your options.

First of all, what is the definition of a Roth IRA? A Roth IRA is a modified individual retirement account that allows people to set aside income after-tax up to a specified amount each year. The earnings on the account are tax-free and can be withdrawn tax-free after you reach the age of 59 and a half. Although you don’t get an immediate tax break with a Roth IRA like you do with a traditional IRA, you won’t pay any tax later on.

Roth IRA rules that you need to keep in mind are maximum annual income limits as well as maximum contribution limits. Roth IRAs have the same contribution limits as traditional IRAs. Currently, $5,000 is the maximum annual contribution limit. If you are 50 years or older, you are allowed to contribute an extra $1,000 per year on top of that. The catch is that you can’t put more money than you make in your IRA. For example, if your annual income is $3,000, you can’t contribute more than $3,000 to your IRA account.

When it comes to income, the definition of a Roth IRA determines that Roth IRAs are an investment option meant for people with lower incomes. For Roth IRAs, the maximum income limit for a single taxpayer in 2008 is $116,000 and $169,000 for a married couple filing jointly.

People who expect to be in a higher tax bracket after retirement are good candidates for Roth IRAs. Although there are no short-term tax benefits like with traditional IRAs, since the money isn’t taxed down the line you can avoid higher tax rates that are inevitable with the passing of time.

Unlike with traditional IRAs, Roth IRA rules do not restrict people of a certain age from making contributions. Traditional IRAs prohibit people over 70 from making contributions whereas with Roth IRAs you can make contributions for as long as you live. You can also leave the money in your Roth IRA account for as long as you would like. On the other hand, with traditional IRAs, you are required to make minimum distributions.

Make no mistake about it. If you have looked over Roth IRA rules and realize that you are indeed eligible to open a Roth IRA account, your best bet is to do so. Roth IRAs are tax-smart investments that can maximize your gains more so than traditional IRAs. Rolling over to a Roth IRA account is also the only way you will be able to self-direct your account, which will guarantee higher returns as well as allow you to gain more control over your investments. If you want more flexibility and would like to double or even triple your returns, roll over to a self-directed Roth IRA account. You’ll soon realize that the benefits of doing so far outweigh those of any other retirement investment option.

Laurel Cohen is an active participant of a national network of professional writers who advocate socially conscious real estate investing through the use of retirement vehicles such as IRAs, 401Ks and other retirement assets. For more information, or to get involved, please visit now.

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  • Your1stopspot Said on February 26th, 2011 at 2:36 am:

    Staing a Roth IRA: Investing for retirement in IRAs is a good idea, especially right now…

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