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 Option to Meet Your IRA Objectives
Concern regarding the instability of Social security continues to grow, and Americans are looking for new ways to secure their financial futures. The Roth IRA gives you the ability to invest your after-tax dollars today, let the investment grow tax-deferred, and take qualifying withdrawals tax-free.
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Is Investing For Retirement Important?
Many ideals are changing in today's society.
For instance:
- The trend of changing employment more frequently does not allow individuals to acquire great reserves in company pension plans.
- Many new entrepreneurs striking out on their own can not offer retirement options to themselves or their employees until the company is more financially secure.
- Social Security is no longer seen as the answer to retirement funding.
Individuals need to take the lead in building their nest egg.
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What Makes The Roth IRA So Unique?
Imagine for a moment that you have just received a paycheck from your company. You look at your payroll summary and notice that there are no federal income taxes withheld. Your initial reaction is that something is wrong. It's not, if this check if from your Roth IRA.
Two factors make this possible:
- First, the money you contribute to a Roth IRA has already been taxed. So the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.
- Second, this retirement plan allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had a plan for at least five years, and satisfy one of the qualifying events, those tax-deferred earnings become tax-free.
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Who Is Eligible?
Unlike Traditional IRA, there is no 70 ½ age limit on making contributions. You simply need to have earned income equal to the amount you contribute up to a maximum of $3,000 ($6,000 combines for spouses) per year. (There are income thresholds which may reduce the amount you can contribute.)
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How Much Can I Contribute?
Individuals may contribute up to $3,000 per year if their modified adjusted gross income (MAGI) is less that $95,000. If an individual's MAGI is between $95,000 and $110,000, they may contribute a reduced amount adjusted for their income. Married couples filing jointly may contribute up to $3,000 each if their MAGI is less than $150,000. Contributions for joint filers are reduced for MAGIs between $150,000 and $160,000.
Roth Ira contribution may not be made by individuals with MAGI of more than $110,000, or couples with MAGI of more than $160,000.
In addition, if an individual has reached age 50 or older by the close of the taxable year, an additional catch-up contribution of $500 may be made.
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Even Though I Cannot Deduct My Roth IRA Contributions, Is There A Tax Credit That is Available?
If your are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000.
An eligible individual is defined as someone who is:
- 18 years of age as of the close of the taxable year
- not a dependent of another taxpayer
- not a full time student
Please see competent tax advisor to determine if you qualify for this credit.
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When Can I Use My IRA Assets?
If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, a plan must have been open for a minimum of five years. Second, the withdrawal must be made after the occurrence of one of the following events:
They may be:
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age 59 1/2
- death
- disability, or
- first home purchase
Distributions that meet the above requirements are referred to as "qualifying distributions." While you may take distributions from your Roth IRA at any time, distributions which are not qualifying distributions will be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs.
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Can I Move Money From My Traditional IRA to My Roth IRA?
The answer is "Yes." There are specific rules that govern the process of converting funds from a Traditional IRA to a Roth IRA.
Some of these rules include:
- Your MAGI must be $100,00 or less.
- If you are married, you must file a joint income tax return
- You must pay taxes on all the pre-tax dollars you move.
- The conversion must be completed within 60 days.
Our representative may suggest you seek advice from a competent tax advisor to confirm whether moving funds is beneficial to you.
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Am I Required To Take Funds From My Roth IRA?
Unlike the Traditional IRA, there are no required minimum distributions at age 70 ½.Your earnings can continue to grow until you need them. There are special requirements when these plans pass to your beneficiaries.
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For more information on the benefits of the Roth IRA, ask on of our representative today for details. Call us toll free at: 1 (800) 228.3701 press "6" or email us at info@certifiedfcu.org
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