Roth IRA

(for individual investors)

What is a Roth IRA?

A Roth IRA (Individual Retirement Account) is a personal savings plan that gives you tax advantages for setting aside money for retirement. In 2008, qualified individuals can contribute up to $5,000 per year into a Roth IRA and up to $6,000 for those age 50 or older (2007 limits of $4,000 and $5,000 if age 50+).

Roth IRAs offer some unique tax advantages compared to other retirement plans since contributions are not tax deductible but withdrawals after age 59 1/2 are tax free. Some of the investments that may be selected inside a Roth IRA are mutual funds, stocks, bonds and CD's.

Individuals can also transfer or "rollover" their employer sponsored retirement plans (401k, 403b, 457, or pension) into a rollover IRA. Often referred to as a 401k Rollover or Rollover IRA, it can later be converted into a Roth IRA provided they meet certain income limitations. When an employer sponsored retirement plan is properly rolled over to a Rollover IRA there is no tax liability. However if the rollover is converted to a Roth IRA it will be taxable.

For some investors a conversion to a Roth IRA may make sense, depending on a number of factors such as your total investment assets, tax bracket while in retirement and estate planning needs.

Key Roth IRA Features

• Contributions to a Roth IRA are not tax deductible. However, there are other advantages and tax benefits.
   
• The unique feature of a Roth IRA is dividends and investment earnings grow tax-free within a Roth IRA. This means you won't have to pay federal income taxes or state taxes in most states, if you make withdrawals after age 59 1/2. This is unique compared to other retirement accounts since money can be withdrawn tax free..
   
• Contributions can be withdrawn tax-free and without penalty at any time. This does not apply to the dividends and investment earnings.
   
• Withdrawals are not required to start when you reach age 70 ½. The IRS requires that investors take distributions beginning at age 70 1/2 for other retirement plans. For some investors who want to transfer assets to family members or investors with estate planning issues this can be a great retirement option.
   
• Dividends and investment earnings may be withdrawn tax and penalty free after the Roth IRA account has been opened at least five years provided the withdrawal meets one of the following qualifying conditions: (1) the owner is 59 ½ or older (2) the owner is disabled (3) death (4) first time home purchase up to a $10,000 (5) qualified higher-education expenses (6) qualified medical expenses exceeding 7.5% of income (7) payment of health insurance premiums while unemployed.

When can I make withdrawals from my Roth IRA?

Contributions can be withdrawn at any time. Earnings may be withdrawn tax free provided the account has been opened at least five years and one of the above listed qualifying conditions has been met. Who should have a Roth IRA?

Who should have a Roth IRA?

Anyone who would like to maximize their retirement contributions.  Investors with income above a certain threshold may not be permitted to contribute to a Roth IRA.

What are the disadvantages of a Roth IRA?

Relatively low contribution limits and contributions are not tax deductible.

When must I take distributions from my Roth IRA?

There are no IRS requirements on when you must start taking withdrawals from your Roth IRA.

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Disclosures:

*  The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.