Retirement planning is boring. There is no other way to put it. But at the end of the day ? or career, it is what matters. So let?s continue taking care of it now, so we?ll be ok later. Hopefully you have already checked out the piece on the importance and benefits of investing in your company?s 401(K). If not jump over to Planning Ahead: The 401(K), and read through it. If you have already read it and better yet already started contributing to your available 401(K) ? great. You are already heading down the road to living rich. But don?t think that simply contributing to your 401(K) will be enough to live out your retirement dreams. The days of retiring and receiving social security benefits alongside your 401(K) are pleasantries that our generation just won?t have t. To help ensure complete financial freedom during our golden retirement days, we have to do more. After contributing the max of what your employer will match within your 401(K), the next step is outside retirement options. A great place to start is the Roth IRA. Just like the 401(K), before you start investing understand first what it does, how it works and how it works for?you.
Named after Senator William Roth, the Roth IRA (Individual Retirement Agreement) was enacted in 1997 by Congress through the Taxpayer Relief Act. A?Roth IRA? is a special type of retirement plan under US law that is generally not taxed, provided certain conditions are met. Through a Roth IRA your investment options include?securities, usually?common stocks?and?bonds, often through?mutual funds?(although other investments, including derivatives, notes,?certificates of deposit, and real estate are possible).?It?s main difference from other retirement plans is that the money invested into it is deducted from your check after taxes have been taken and then grows tax free. You are then allowed to withdraw your contributions at any time without taxes or penalty. The key word here is contributions. Let?s say you place $2000 into your Roth IRA and successfully invest it so that it grows to $3000. At any point in time you can withdraw that $2000 you contributed but you can?t withdraw that $1000 you gained without incurring tax and an early withdrawal penalty. To withdraw any gains without incurring taxes or penalty fees the Roth account has to be held for at least five years and you must be at least 59 ?. But there are exceptions to this rule. In the case death or disability of the account holder the gains can be withdrawn tax and penalty free or up to $10,000 ?in gains can be withdrawn to purchase a first home for yourself or certain family members. In addition, you can also withdraw earnings early to pay higher-education costs for yourself or a family member and not have to pay the 10% early withdrawal penalty, but will still incur income taxes.
Basically, a Roth IRA makes a lot of sense if you expect your tax rate to be higher during retirement than your current rate. This makes it an ideal option for us (young working individuals) as we can benefit from many years of tax-free, compounded growth.?There is no age limit as you can contribute to a Roth IRA at any age as long as you have earned income from a job, but there are income eligibility limits. If you make too much money, you can?t contribute. Wouldn?t that be a great problem to have? ?Damn man. I can?t even start a Roth IRA because I make too much money!? Haha. No seriously let?s check out the income restrictions. I think the majority of us are safe for now.
For 2012, the maximum you can contribute to a Roth IRA?is $5,000 ?($6,000 if you are age 50 or older by the end of the year) if you are single or the single head of a household and your modified adjusted gross income is less than $110,000. So all of us single individuals who make less than $110k can contribute to a Roth IRA. If you are married and filing jointly, you can contribute the maximum amount ?if your income is less than $173,000. I still think the majority of us fall under these umbrellas. But for those lucky people who don?t, you can make a partial contribution to a Roth IRA if you are single and your income is between $110,000 and $125,000 or if you are married filing jointly and your income is between $173,000 and $183,000. If you make more than that, take your money elsewhere suckers. You can?t contribute to a Roth IRA if your income is above those levels.
This is a just a brief overview to make you aware of the Roth IRA. Talk to others who may be investing in one, do some research via Google, and examine all your options provided by different financial institutions that offer Roth IRAs. Perform your due diligence then select one that works best for you.
Category: Money
Source: http://www.lootandrob.com/money/planning-ahead-the-roth-ira/
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