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Have you read about this recently? The government has set
up Roth IRA rules that allow you to save and earn money for
retirement that won’t be taxed when you take it out. Does
it sound too good to be true? Well, it isn’t. You can really
save the best for last when you set up this type of savings
account.
The definition of a Roth IRA, named for U.S. Congressman,
William V. Roth, Jr., is a retirement savings account in which
an individual is allowed to set aside a specified amount of
their income, after taxes. Earnings grow tax free and can
be withdrawn, tax-free, at age 59 1/2.
Allowable Contributions
In 2008, Roth IRA rules limit allowable contributions $5000.
Making maximum contributions annually, while earning just
a modest 8% interest, means that you could build a substantial,
tax-free nest egg.
While this type of retirement savings plan may seem ideal,
there are some additional Roth IRA rules that you should be
aware of.
Allowable contributions must come from income that your earn
from a job. If the income from that job is over $101,000,
your maximum contribution will be lowered, from $5000, incrementally,
according to your income amount.
If you file a joint tax return, your combined income cap
is $159,000. Above that amount and, again, your allowable
contributions will be lowered accordingly.
If you are at a point in your career where your income is
well below the maximum cap, but you expect to meet and exceed
that cap in the next few years, you would still be well advised
to take advantage of a Roth IRA. The earnings from contributions
made even over a short period of time could add a substantial
tax free bonus to other retirement savings.
Added Incentives
And speaking of bonuses, Roth IRA rules provide some added
incentives for individuals holding these accounts. For example,
you can withdraw your contributions (not your earnings*),
any time, tax free. This may come in handy if you find yourself
in financial dire straits. Ideally, though, this money really
is for retirement and shouldn’t be touched, if possible.
If you’ve had a Roth IRA for at least five years, you can
also withdraw up to $10,000 ($20,000 if you’re married), tax
free to purchase a home. If you’ve had your account less than
five years, you can still withdraw the maximum amount for
a home, but you will have to pay taxes on it. However, there
is no 10% early withdrawal penalty.
Roth IRA rules also allow you dip into your savings to help
pay college expenses. You are allowed to withdraw contributions
tax free, but if you take out earnings, they will be taxed
accordingly, without the 10% penalty provided that the funds
are being used for college.
Allowable Investments
You may notice that the definition of a Roth IRA doesn’t
cover investing your contributions so that you can grow your
earnings. However, according to Roth IRA rules, you are allowed
to invest in almost anything stocks, bonds, CD, mutual funds
and even real estate.
You can set up a self directed Roth IRA that will give you
decision-making authority over investments. If you don’t care
to be more involved beyond making contributions, your financial
institution or investment counselor will invest your money
for you. In both cases, the custodian of your account will
be responsible for generating reports, regulation compliance,
and other applicable paperwork.
If you follow Roth IRA rules, you can get your taxes out
of the way, save and earn money and never have to give Uncle
Sam another dime. That’s what I call, "saving the best for
last!"
Nicanor Castillo is a passionate advocate of building
wealth through sound financial investments. In recent years,
Nicanor has focused on socially conscious investing which
empowers urban communities while achieving a guaranteed minimum
return on investment. To find out how you can participate,
visit http://www.irainvestingadvice.com
Article Source: http://www.ArticleBiz.com
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