For some people (I generally think that in the long run, the Traditional IRA is
the better bet for most people due to getting a tax break up front and
anticipating lower wages and thereby lower taxes in retirement), the Roth IRA
is a better choice for their investment needs than the older Traditional IRA
for several reasons. Especially for military personnel who are on active duty
in a war time situation, their compensation is tax free, and therefore any
contribution they make to their Roth IRA is after tax dollars, even though they
were not taxed on their earnings.
A Roth IRA can also be especially beneficial to the entrepreneur that
anticipates higher wages in retirement due to past business activities that pay
off in retirement as passive income. But for most of the W-2 type earners, the
traditional IRA works out better in the long. But without further ado, let's
look at some things with regard to Roth IRAs.
The Benefits
1.
All qualified contributions are made with after-tax dollars and therefore all
monies in the account, including earnings can be withdrawn tax free with
certain provisions.
2. Contribution eligibility is not restricted by active participation in an
employer's retirement plan.
3. The minimum distribution rules don't apply. Unlike the traditional IRA, you
don't have to draw on your Roth IRA at age 70, which means your earnings
continue to grow tax-free.
4. You can take certain early distributions without paying any early
distribution penalties.
Contributions
1.
If you are under the age 50, you can donate as much as $4,000 in 2007, and
$5,000 in 2008.
2. If you are over age 50, you can donate as much as $5,000 in 2007, and $6,000
in 2008.
Eligibility
1.
You or your spouse must have compensation income equal to the amount you have
contributed.
2. Your modified adjusted gross income can't exceed certain limits. For the
maximum contribution, the limits are $99,000 for single persons and $156,000 for
married individuals filing joint returns. These dollar amounts apply through
2007.
So if you meet these eligibility requirements, and hope to make more money
later in life, it may be to your advantage to invest in a Roth IRA vs a
Traditional IRA. If possible, you may consider using both options.
Get more great finance and investing tips at Jeffry Evans' personal finance blog. What is a Roth IRA? is just one of many great articles you will find at Personal Finance Resources.
Article Source: DesireToRetire.com