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How
does the tax part work for the ROTH?
You can not
deduct any of your contribution from your federal tax
return.� However, as your Roth account grows
through earnings on investments, you never
get taxed again on the account...again, not even when
you withdraw it!��
Can
I contribute to other retirement plans in addition to
the ROTH?
Yes!�
As an individual who is employed by someone else, you
can still contribute to your work's retirement plan AND
the ROTH during the same year.� Also, if you are
self-employed, you can also still contribute to your own
self-employed retirement plan and the ROTH!��
However,
there is a catch here that we mentioned earlier...if you
contribute to the ROTH and a traditional IRA, you can
only contribute $2,000 combined to both accounts.�
For example, you could contribute $1,500 to the ROTH and
$500 to the traditional IRA.� The part that you
contribute to the traditional IRA is still
tax-deductible...but is taxed later.��
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Am
I REQUIRED to contribute each year to the ROTH?
No!�
You decide every year if you want to contribute...and if
so, what amount, up to the maximum allowed ($2,000).�
You would be lacking sense if you didn't contribute as
much as you could every year!� Also,
you can't "catch up" for previous years!���
Is
there a DEADLINE for setting up the ROTH?
You
have
up until the date that you file your tax return (usually
by
April 15), to contribute to your ROTH for the previous
year.� So, you can set up a Roth for 2000, as
long as you contribute to it before April 15, 2000, or
whenever you file your tax return.�
When
can I start withdrawing money from ROTH?
When
you are 59 1/2 usually.� If you withdraw before then, you
will be hit with a 10% premature withdrawal penalty,
unless you have had a ROTH set up for 5 years and
at least 1 of the following:
- You
are disabled
- You
use the ROTH money to pay up to $10,000 of
qualifying first-time home buyer expenses
- You
use the money to pay for undergraduate expenses
If
you meet these criteria,
then you will not be taxed on any withdrawals.� The balance that you haven't
withdrawn yet continues to accumulate earnings tax free.� You
do not have to start
withdrawing from the account by age 70 1/2 like with the
other accounts we will discuss.� Also, you can keep
contributing to this account as long as you live!� Note:� You can't ever borrow from this
account...but you can take money out to pay for a first
house or college expenses!��
What
happens if I still have money in the ROTH when I die?
When
you set up the plan, you select a beneficiary or
estate.� (The plan automatically terminates unless
your spouse is the beneficiary.)� If you die and
there is still money in the account, the money will
transfer to your
beneficiary...and they can elect to allow the plan to
continue to accumulate earnings tax free.�
They can also elect to not withdraw from the
account...and let it ride!� And, as with you, the
earnings from this account will not be taxable when they
withdraw from the account.
What
if I make between $95-$110 K as a single, or between
$150-$160 as a married couple?
Basically,
you have to reduce the amount that you can
contribute.� It will be reduced by the percentage
that you are over the $95K amount (if single) or the
$150K amount (if married).� The amount that your
contribution will be reduced by can be seen by using the
following example:
Bryan
G., single, makes $98,000 per year.� His salary is
$3,000 over the $95,000 limit for a single person.�
So, instead of being able to contribute the full $2,000,
he can only contribute $1,600 this year.� This is
determined by taking the $2,000 - ($3,000 over
/$15,000).� This equals $2,000 - $400, or $1,600.
Wrap-Up
Bottom
line:� The ROTH should be included in
your retirement strategy.� There are simply too
many benefits to not use this tool.� This shouldn't
be the only option you use...since you can't contribute
more than $2,000 a year per person.�� However,
if you meet the income requirements, you are basically
robbing yourself if you don't take advantage of
it!���
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