Roth IRA

A Roth IRA is a retirement savings vehicle like a 401K or traditional IRA. Roth refers to the legislative sponsor, and IRA stands for individual retirement account. Unlike a traditional IRA, your contributions to a Roth IRA are not tax deductible. However, the beauty of a Roth IRA is that you’re not stuck with a tax bill on your withdrawals. That includes the gains on your investments, as long as you are older than 59 ½ years and the Roth IRA has been opened for at five years. In short, a Roth IRA is a tax-advantaged form of wealth accumulation. First-time home buyers can pull out as much as $10,000 in profits, again without penalties or taxes, as long as the account has been in place for five or more years.

When can you cash out a Roth IRA?

Investors can take qualified distributions from their Roth IRA accounts after at least 5 years from the date that the account was opened or when the owner has turned age 59 ½. The account owner may have the opportunity to withdrawal funds to complete a first home purchase (up to $10,000), or in the event that they have become disabled. When withdrawals are taken from a Roth IRA under qualifying circumstances, the funds are treated on a tax-free basis.

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Income Limits for Roth IRA Conversions to be Eliminated

Income limits that have prevented many people from converting from a traditional IRA to a Roth IRA will be eliminated on January 1, 2010. With a traditional IRA, contributions and growth of capital are tax free, but distributions are taxed as normal income. Roth IRAs differ in that contributions are taxable while growth of capital and distributions are tax free. In addition, unlike traditional IRAs, there are no required minimum distributions with Roth IRAs. Last, with a Roth IRA your heirs do...

Retirement Planning Roadmap - Key Events

An outstanding layout of a retirement planning timeline from Emily Brandon at U.S. News and World Report. Key dates and ages are discussed for all manner of retirement planning milestones: 401k contributions and distributions. IRA contributions and distributions. Roth IRA contributions and distributions. Medicare. Social Security . Required minimum distributions. Source: U.S. News and World Report Full Story
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