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Roth IRAA retirement arrangement that takes after tax contributions, but qualified withdrawals are tax-free. 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? 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 2006 can not exceed the lesser of $4,000 or 100% of compensation ($8,000 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 gradually increase from $4,000 to $5,000 in the year 2008.
Indexed for inflation after 2008
Individuals with adjusted gross income (AGI) up to $114,000 and married couples with AGI up to $166,000 are eligible to make $5,000 per year contributions to a Roth IRA.
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:
Can I convert my Traditional IRA to a Roth IRA? You can convert a Traditional IRA to a Roth IRA if certain specific rules have been followed.
The answer to this question depends on a number of variables including your assumptions about your future tax rates. For example:
*This information should not be construed as providing tax or legal advice. Please consult with your tax advisor or attorney regarding your individual situation.
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