Helpful Information on a Roth IRA

What, exactly, is a Roth IRA?   In 1998, Senator William Roth helped pass the Roth IRA due to the Taxpayer Relief Act.  Basically, a Roth IRA means that all of the investment earnings are tax free if certain requirements are made.

This applies to the person who has the Roth IRA as well as the beneficiary of the Roth IRA.  There are several benefits to a Roth IRA.  One of the main ones is that they are tax free earnings.  Another benefit of a Roth IRA is that there are no penalties to for early withdrawal on them.  Also, there are no minimum distributions after the person reaches the magic age of 70 1/2 years of age as opposed to regular IRA's.  In other words a person can easily take money out and put money into their Roth IRA and not be charged penalties, and still maintain investment earnings tax free.

There are disadvantages to a Roth IRA, too.  The biggest draw back to a Roth IRA is that when a person makes a contribution, they do not receive any type of deduction for it. 

To be eligible for a Roth IRA, one must follow some requirements.  There are certain income guidelines that must be met.  For example, a single person, or a person filing single, cannot have an income exceeding $95,000.  A married couple's required income is not to exceed $150,000 annually.  Another requirement to be eligible for a Roth IRA is that the person must have compensation that equals the amount of the contribution.

Also, if a person has a regular IRA, they can choose to convert them over to a Roth IRA.  If this rollover takes place before the year is over, they will more than likely have to pay a conversion tax.  However, it may be well worth it in the end.

To decide whether a Roth Ira is for you, ask yourself these questions.

• Are you in a low tax bracket?  If so, then you are probably better off with a Roth IRA. If you are in a higher tax bracket and expect that when you need to withdraw you will be I a lower tax bracket, then a regular IRA is probably more beneficial.
• If converting into a Roth IRA, will you need to hold some of t he money out to pay conversion tax?  If so, then maybe you would be better off to keep it in a regular IRA. 

There are many benefits to a Roth IRA.  One needs to research their personal situation before deciding to do so, and consult with your financial advisor.

Recommended: Use your Self-Directed IRA, Roth or 401(k) Plan + Loans to buy investment property