Why Invest In Roth Ira Contributions?

Roth IRA contributions were introduced in 1997, and named after Senator William Roth Jr. of Delaware who was one of the chief proponents of the Individual Retirement Account law. There are advantages and disadvantages to choosing either the Roth IRA contributions or the traditional IRA contributions but both have contribution limits.

The differences between the two contributions are as follows:

• Roth IRA contributions are not deducted from the taxable income while traditional IRA contributions are deducted from the taxable income

• With the IRA contributions are not deducted from the taxable income, an individual can withdraw his total contributions tax free; withdrawals of his earnings although subject to certain limitations, is generally free from tax.

• Another difference and considered as an advantage to a Roth IRA contribution is that the eligibility to contribute is not restricted by being an active participant in your employer’s retirement plan.

• And unlike traditional IRA, where practically anyone can make IRA contributions, the law specifically limits those willing to apply for Roth IRA contributions and is usually income-based.

The current maximum allowable Roth IRA contributions is fixed at $4,000 for those ages 49 and below and $5,000 for those ages 50 and above. An individual’s maximum contribution is determined by his Modified Adjusted Gross Income or MAGI.

For instance if your MAGI is below a fixed level you can qualify for a maximum allowable ROTH IRA contribution, If your MAGI has reached the fixed level, your ROTH IRA contribution is subject to reduction or phasing out. If your MAGI overshoot the fixed range, contributions would no longer be allowed.

If you are single and you’re MAGI is pegged at a range at $95,000 or below you can avail of a maximum allowable contribution of $4,000. And if your MAGI is at the range of $99,000-$114,000 you are eligible for a partial or phased-out contribution.

If you are married and have filed jointly and your MAGI falls at a range of $156,000 or below then you are allowed to contribute to the maximum amount. Partial or phased-out contribution is for those couple or joint filers whose MAGI have reached a range of $156,000-$166,000.

Unlike traditional IRA there is no age limit for those who would want to make Roth IRA contributions. Aside from young people, individuals who have reached 70.5 years old and who are no longer eligible to contribute to the traditional IRA can still be accommodated by Roth IRA as long he has met the required eligibilities like having an earned income and a MAGI that falls within the range fixed by law.

Roth IRA is often offered as a savings or investment option for young people, particularly due to the fact that contributions to ROTH will grow without tax liability. There is even a tax-free privilege that applies upon the withdrawal of your earnings in retirement.

Roth IRA contribution is one of the most flexible retirement savings plans since it can be managed creatively. You can invest your Roth IRA in stocks, bonds, real estate or mutual funds.

The IRA can be set up at any Internal Revenue Service (IRS) approved financing institutions like banks, brokerages or some credit unions and can be set up anytime of the year but Roth IRA contributions for a certain tax year must be made before the contributor’s tax deadline.

If you decide to apply for one, Roth IRA contributions can be funded from the following; individual contributor, spousal Roth IRA contributions, and transfers between similar plans, rollover contributions, conversions and re-characterizations involving the shift of contributions from one type of IRA to a different IRA.

Ira Contribution