When Do You Pay Taxes On A Roth IRA ?
Roth IRA does not provide deduction for what you contribute. But, the advantage is that all your earnings are tax free. The only difference between a Roth IRA and a traditional IRA is that you are not eligible for deductibles with a Roth IRA whereas you are for a traditional IRA. |
Sponsored Links :
|
The option of having your investment grow tax free is certainly enticing, which is what makes the Roth IRA so popular. There are other major advantages to a Roth IRA.
- You hold after-tax dollars.
- The rules of minimum distribution do not apply.
- Take early distribution without having to pay the early distribution penalty
A Roth IRA eligibility exists when you contribute regularly to a Roth IRA or convert your traditional IRA into a Roth. This comes with two conditions though. One, the modified adjusted gross income should be $100,000 or less. Second, you are single or you file jointly with your spouse. However, these restrictions will be lifted from 2010, and then anyone can have a Roth IRA.
The way of paying tax on this is simple. You pay income tax upfront, which leaves you with post-tax dollars to make contributions. The principal then grows free of tax. Plus, you do not pay any other taxes on withdrawal. It does not require special reporting to the IRS. However, if you remove the earnings early, you will be penalized. It is only the contribution that can be removed without any penalties.
Withdrawals of earnings come with these requirements:
- You are over age 59 and half years
- A minimum of five years have passed since you established your Roth IRA
For 2009, Roth IRAs must be set up by April 15, 2010. The conversion Roth IRAs for 2009 must be set up by December 31, 2009, or funds for the traditional IRA should be rolled over to a Roth IRA by December 31, 2009.
The Roth IRA contribution limits for 2009 are $5,000 for individuals who are under 50 years, and $6,000 for those who are 50 years and above.
More Articles :
|
