Series 6

Retirement and College Savings Plans - Roth IRAs

The Roth IRA was introduced by the Taxpayer Relief Act of 1997. This Act essentially allows investors to contribute to a form of IRA called a Roth IRA in which contributions are not tax-deductible. Instead, an investor can withdraw funds from a Roth IRA tax-free after five years of ownership, and only under certain circumstances outlined by the IRS. Moreover, RMD rules do not apply to the Roth IRA.

In 2013, an individual can contribute up to $5,500 to a Roth account. There are certain income limitations on Roth IRAs. A single person with an AGI of $114,000 or less can contribute to a Roth IRA, with the phase-out of contributions occurring between $99,000 and $114,000. The AGI limit for married couples filing jointly is less than $166,000, with the phase-out of contribution eligibility occurring between $156,000 and $166,000. It does not matter if the investor participates in an employer-sponsored retirement plan, as anyone is eligible for a Roth IRA. For individuals who are married and living with their spouse, but are filing separately, their AGI must be less than $11,000, with the phase out occurring between an AGI of $0 and $11,000.

The Roth IRA is arguably the IRA with the most potential tax advantage. Find out why and more within the tutorial: Roth IRAs.

Although Roth IRAs have excellent tax benefits, make sure you or your client meets the eligibility requirements. The article, Roth IRA: Back to Basics holds more information.

In some cases it is beneficial to split contributions between Roth and Traditional IRAs, depending on your client's needs. Read more about the deductions and tax credits associated with IRAs within the article IRA Contributions: Deductions and Tax Credits.

Note that in some cases either the Roth or Traditional IRA will be more beneficial for a client than a combination of both. In order to answer this question in detail you need to consider several factors, which are outlined within the article: Roth or Traditional IRA... Which is the Better Choice?


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