| A Roth IRA is an Individual Retirement savings | | | | Earned income: is any compensation you received for |
| Account best known for providing tax free earnings | | | | providing a service or product. |
| growth and tax free retirement distributions. | | | | It does not include investment income from interest, |
| Individuals can contribute up to $4000 a year ($5000 | | | | dividends, orcapital gains. |
| if 50 and older) from after-tax dollars, and in return | | | | HINT: Alimony that is taxable is also included in |
| may receive tax free retirement income, provided all | | | | calculating earned income. |
| rules are met. | | | | 2007 Income Limits |
| KEY POINT: In order to receive tax free retirement | | | | The income guidelines for contributing to a Roth IRA |
| distributions: | | | | are as follows: |
| 1) you must be 59 1/2 | | | | 1. To be eligible for making the maximum contribution |
| AND | | | | of $4000, your modified AGIcannot exceed $99,000 |
| 2) your Roth IRA must be at least 5 years old. | | | | if you are single, or $156,000 if married and |
| Hint: A Roth IRA is not an advisable investment | | | | filingjointly. |
| option if you plan to retire within the next 5 years. | | | | 2. Your contribution is reduced if your modified AGI |
| Roth vs Traditional: What makes the Roth IRA | | | | falls between $99,000 and |
| different from a Traditional IRA? | | | | 114,000 for singles, and between $156,000 and |
| KEY DIFFERENCES: | | | | $166,000 if married filingjointly. |
| Roth IRA: Pay Taxes Now, Not Later:The Roth IRA | | | | 3. If filing married with a separate return AND lived |
| is Tax-Exempt --meaning retirement income is tax | | | | together for any part of the year, the income |
| free. | | | | restriction is severely limited. The full contribution is |
| - Contributions come from After-Tax dollars (not | | | | permitted if your income is zero dollars. A partial |
| deductible) | | | | contribution is permitted if your income falls between |
| - Retirement Distributions are Not Taxed (when rules | | | | Zero and $10,000. |
| are met) | | | | Establishing a Roth IRA |
| - IRA Investment Earnings Grow Tax Free | | | | Anyone can open a Roth IRA and the process is |
| - No required Distributions (you never have to use | | | | very simple. Banks, Insurance Companies, On line |
| the money) | | | | Brokers, and other financial firms typically offer Roth |
| - Has Income Restrictions | | | | IRAs in addition to other types of IRAs. When |
| - No Age Restrictions (can make contributions at any | | | | opening an IRA you will need to designate it as a |
| age) | | | | Roth IRA. . (For more info, see "How to Set Up An |
| The Traditional IRA is Tax-Deferred = Pay taxes | | | | IRA: A Step by Step Guide") You can also rollover or |
| later | | | | convert your Traditional IRA into a Roth IRA. |
| - Contributions come from Pre-Tax dollars (tax | | | | Tax Implications: Planning for the future |
| deductible) | | | | There are basically two schools of thought regarding |
| - Retirement Distributions are Taxed at a future Tax | | | | IRAs and tax consequences. The first school of |
| Rate (when distributions are taken) | | | | thought says the traditional IRA is the way to go |
| - IRA Investment Earnings Grow Tax Deferred | | | | because when you retire you will have less income to |
| - Required to Take Distributions by age 701/2 | | | | be taxed, thus a greater tax savings. The second |
| - Has age restrictions (Can no longer contribute after | | | | school of thought says hey, we don't have a crystal |
| age 701/2) | | | | ball to know what the future tax rates will be, but |
| - No Income Restrictions | | | | we do know they will be higher than they are now. |
| 2007 Roth IRA Contributions | | | | These people find the Roth IRA to be the most |
| How Much Can I Contribute to my Roth IRA? | | | | attractive choice because paying taxes today may |
| In general, the maximum amount an individual can | | | | mean saving a bundle of taxes later, when you can |
| contribute to a Roth IRA is $4000 ($5000 if age 50 | | | | least afford it. |
| or older) in a single year. The specific time frame for | | | | Then there are folks who realize the world is not |
| making 2007 contributions is from January 1, 2007 to | | | | black and white and will seek a mixed bag of |
| April 15, 2008. | | | | Traditional and Roth IRAs to round out the tax |
| You can contribute up to 100% of your earned | | | | consequences in retirement. It really comes down to |
| income or $4000 ($5000 if 50 orolder), whichever is | | | | individual circumstances and personal goals. |
| less, MINUS any other IRA contributions you made | | | | The Roth 401k |
| thesame year. | | | | In conclusion, let us give thanks to the late former |
| For instance, if you made $58,000 in 2007 and | | | | Senator from Delaware, William V Roth. He pushed |
| contributed $3000 to yourother IRAs (excluding any | | | | for the creation of the Roth IRA and finally in 1998 it |
| employer sponsored plans), you are now eligible | | | | made its first appearance. And, you guessed it, the |
| tocontribute only $1000 to a Roth IRA. | | | | Roth IRA has now evolved into a 401k, which was |
| Or let's say you only made $2400 in 2007. You can | | | | first introduced in 2006. The Roth 401k is sure to |
| only contribute $2400 toyour Roth IRA, provided | | | | gain popularity just as the Roth IRA did when it was |
| you made no other IRA contributions in 2007. | | | | first introduced. |