A retirement arrangement that takes after tax contributions, but qualified withdrawals are tax-free.

• What are the tax benefits of a Roth IRA?
• What are the eligibility requirements for a Roth IRA Account?
• How much can I contribute?
• When can I withdraw from a Roth IRA?
• Can I convert my Traditional IRA to a Roth IRA?
• How do you decide between a Traditional IRA and a Roth IRA?

What are the tax benefits of a Roth IRA?

Unlike contributions to a Traditional IRA, contributions made to a Roth IRA are not deductible. The major benefit of Roth IRAs is that earnings from investments are tax-free.

What are the eligibility requirements for a Roth IRA Account?

Unlike the Traditional IRA, there is no 70 1/2 age limit on making contributions. Individuals of any age with compensation are eligible to contribute to a Roth IRA. The total amount you may contribute to a Roth IRA for 2010 and 2011 can not exceed the lesser of $5,000 or 100% of compensation ($10,000 for married couples).

If you maintain a Traditional IRA, the maximum contribution to your Roth IRA is reduced by any contributions made to your Traditional IRAs.

How much can I contribute?

By the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA ), the annual contribution limit for both traditional and Roth IRAs will be indexed for inflation starting on the year 2008.

Individuals with adjusted gross income (AGI) up to $105,000 and married couples with AGI up to $167,000 are eligible to make $5,000 per year contributions to a Roth IRA. Individuals with adjusted gross income (AGI) between $105,000 and $120,000 and married couples with AGI between $167,000 and $177,000 are subject to a reduced contribution limit.

When can I withdraw from a Roth IRA?

For distributions to be "qualified distributions" that are entirely tax free, they have to meet two requirements. First, the distribution must be made after the 5-tax-year period beginning with the first tax year for which a contribution was made to an individual's Roth IRA. Second, the distribution must be made after one of the four following events has occurred:

• The participant has attained age 59 1/2.
• The distribution is paid to a beneficiary due to the participant's death.
• The participant has become disabled.
• The withdrawal is made to pay qualified first-time home buyer expenses.

If a distribution does not meet these requirements, it is referred to as a non-qualifying distribution. A non-qualifying distribution will be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs.

Can I convert my Traditional IRA to a Roth IRA?

You can convert a Traditional IRA Account to a Roth IRA Account if certain specific rules have been followed.

• The conversion income limits have been eliminated for 2010.
• For married couples, tax returns cannot be filed separately.
• You must pay taxes on all the pre-tax dollars you convert. However, investors who convert in 2010 have the option to spread their tax liability by including half of the conversion amount in their 2011 tax return and half in their 2012 tax return. In subsequent years, they will have to pay all taxes the year they convert.
• The conversion must be completed within 60 days.

How do you decide between a Traditional IRA and a Roth IRA?

The answer to this question depends on a number of variables including your assumptions about your future tax rates. For example:

• If you are not eligible to deduct Traditional IRA contributions but qualify for a Roth IRA, then the Roth IRA is the better choice. Roth IRA contributions are made in after-tax dollars while earnings are generally are not taxable.
• If your Traditional IRA contribution is tax deductible and you are also eligible to contribute to a Roth IRA, then
1. if you expect your retirement tax rate to be equal or higher than it is today, a Roth IRA should yield the greatest benefit.
2. if you expect your retirement tax rate to be much lower than it is today, you should probably choose a Traditional IRA.