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Retirement Planning: Roth IRA

Retirement Planning: Roth IRA

For many years I contributed to my company 401K plan which is a traditional IRA account. It is a great plan since my employer matched a portion of my contribution and I was able to use pre-tax dollars. However, it lacked some of the flexibility that I wanted for retirement, so I learned about the benefits and differences of Roth IRA plans.

The many Benefits include: tax free growth; tax free withdrawals (if qualified); tax free, penalty free principal withdrawals; tax free, penalty free withdrawals (at age 59 1/2).

Although you contribute to the account with your after-tax dollars, all withdrawals are tax free if you meet the following conditions:

You are at least 59 and a half years old.

The account has been in existence for at least five years.

To make sure that your withdrawal is a qualified distribution and not taxable, more information is available from the IRS.

If you buy a stock, and it pays a dividend you receive the entire dividend tax-free. The ability to have investment earnings free of taxation is great; however, when you contribute to your Roth IRA there is no deduction.

As in the case of a traditional IRA plan, there are no mandatory minimum distributions at age 70 and a half.
You can withdraw money at any time without paying taxes up to the amount of your contributions.
There is no age limit on contributions.

Who is eligible?
You can establish a Roth IRA even if you have a 401K or other retirement plan through your employer. Effective 2011 your contributions can be as much as $5,000 and $6,000 if you’re 50 or older by the end of the year.
You must have qualifying income at least equal to the contributed amount.

See Also
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Under US laws, your modified adjusted gross income cannot be more than $107,000 for an individual or $169,000 for a married couple filing jointly.

It’s great that you can convert a traditional IRA account to a Roth IRA. Taxes will need to be paid in the year of the Roth IRA conversion. But for most the long-term savings outweighs the tax implications.
How do you get started?

First you will have to find a bank like Discover Bank or an investment company to set up your Roth IRA account. It is always a good idea to do some homework and learn about who will be managing your money.

I know there is a lot more that you’ll want to know before investing into a Roth IRA or any retirement account for that matter. I hope that I have highlighted some of the key benefits and flexibility of a Roth IRA for you.

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