What is so great about a Roth IRA anyway?

Most people have the choice of investing in either a traditional IRA or a Roth IRA, and many wonder which is better. Roth contributions are made with after-tax dollars, or money that you’ve already paid taxes on. Traditional IRAs can be made with pre-tax dollars if you qualify, or money that you have not paid taxes on yet. But Roth’s grow tax-free for the rest of your life. This could be a huge advantage of a Roth. Traditional IRAs grow tax-deferred, meaning that you will eventually pay the taxes on the earnings when you, or your beneficiaries take the money out.

Who can contribute to a Roth IRA?

The government has set limits on who can contribute to a Roth depending on your annual income. If you file your taxes as a single, you can make a full Roth contribution if your Modified Adjusted Gross income is below $101,000. If your income is between $101,000 and $116,000 you can make a partial contribution. If you make above $116,000, you cannot contribute to a Roth.

If you are a joint tax filer, you can make a full Roth contribution if your household income is below $159,000. Between $159k – $169k you can make a partial contribution, and above $169k you cannot contribute to a Roth

How much can I contribute?

For 2009, any eligible person age 49 or younger can contribute a maximum of $5,000 to a Roth. If you turn age 50 or older in 2009, you can contribute a maximum of $6,000. This extra $1,000 is considered a “catch-up” amount. Contribution limits should continue to be adjusted upward for inflation each year, but at this point we do not have amounts for 2010 and beyond.

If you would like to learn more about Roth IRA conversions, the advantages and disadvantages of Roths and more, please visit?www.great-financial-planning.com/roth-ira-limits.html?at your convenience.

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