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Retirement 101: Roth IRAs
Posted By Ron On May 15, 2012 @ 9:01 AM In Investing,Retirement | Comments Disabled
Roth IRAs are one of the greatest wealth vehicles that has been made available to the average person in decades. By using after tax dollars to make your contributions, your growth and earnings are not taxed when you withdraw them after age 59 1/2!
Roth IRAs are similar to traditional IRAs, but with three major differences:
Roth and Traditional IRAs differ in a few other significant, but more complex, ways. The following table breaks down all the important traits of Roth IRAs, including all the specific features that distinguish Roths from Traditional IRAs.
You never have to pay taxes on any investment gains or withdrawals if:
Plan participants can be any age. Singles with earned income below $110,000 ($173,000 for married joint filers) can make the full contribution plus the “catch-up” contribution, if applicable. Contribution limits decrease for singles with $110,000–125,000 of earned income ($173,000–$183,000 for married joint filers). Singles or couples with income above these ranges can’t contribute to a Roth IRA.
All contributions vest immediately.
A Roth IRA for a given year must be set up by April 15 of the next year.
All contributions to an IRA for a given year must be made by April 15 of the next year.
Up to $5,000 per year or, if you’re age 50 or older, up to $6,000.
Earned income (salary, commissions, other work-related sources, alimony).
Since Roth contributions are made with after-tax dollars and don’t qualify for tax deductions, no penalty applies to early withdrawals equal to the amount of your original contributions. Any gains realized by early withdrawals are subject to income tax and a 10% penalty, however.
Most plans can be transferred to other Roth (after-tax) retirement plans.
Loans from Roth IRA accounts are not permitted.
You can designate primary and contingent beneficiaries. Roth IRAs are the only IRAs that can be passed on income tax–free to beneficiaries.
Roth IRAs have no required minimum distributions.
Annual fees range from $0–50. Minimums range from $0–25, depending on the plan provider. However, Scottrade has no fee IRAs  and you can easily use them to purchase commission free exchange traded funds .
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