Wednesday, September 25, 2013

A gift from Uncle Sam - Roth IRA

Open a Roth IRA if you have not done so already.

It is not often we receive a gift from Uncle Sam but this one is a beauty!

1. If you have earned income you may contribute to a Roth. Even children are eligible. You can open a Roth IRA at your local bank or online.

2. It offers liquidity - meaning you can withdraw your contributions if you need the money. (There are restrictions on withdrawing the earnings or growth.)

3. Down the road, in retirement, withdrawals are tax-free. (Your regular IRA or 401k will be taxed as income both state and federal.)

4. The IRS offers a large window for you to make your contribution - 16 months.
e.g from Jan.1 of 2013 through April 15 of 2014.

5. $5500 is the limit for folks under 50. ($6500 for those over 50.)

But be smart about it - set up an automatic payment plan and have $100 deducted each week from your checking account. If you can't afford $100, then deduct $25, $40 or $50. The limit is $5500, you may always contribute less. Contribute something!!

6. To buy your first house, once the Roth has been open for 5 years, you may withdraw all of you contributions and up to $10,000 of your earnings, with no taxes or penalties.

7. Your heirs will receive whatever is left tax-free.

Be aware, if you are single and make over $68,000 (AGI)

or married with a combined income of $112,000 (AGI)

you are not be eligible to contribute to a Roth. (There had to be some catch!)

AGI - adjusted gross income - (taxable income after deductions)

This information is for education purposes only. It is not advice.