How to Invest in a Roth IRA

More and more today than ever before, people are investing into their retirement.  There are several options out there, such as 401K plans and 403B plans. Some companies offer profit sharing plans that are very beneficial to their employees.  One of the fastest growing investment plans is IRA's, or Individual Investment Accounts.  The Roth IRA Investment plan is a great strategy to have in the retirement planning process.

Some people do not realize that there is a difference in a traditional IRA as opposed to a Roth IRA.  The fact is that there are many differences in the benefits, as well as the requirements, of the two different IRA plans. 

With the traditional IRA, any individual under the age of 70 1/2 that has an earned income can qualify for this type of investment.  An earned income has to be earned at a place of employment or for services rendered. Dividends and rents, etc. cannot be included as earned income. 

With a Roth IRA, age doesn't have any impact on the individual. However, there are income requirements with a Roth IRA.  If the individual is single, there income cannot exceed  $95,000 gross income per year.  If married, the gross annual income cannot exceed $150,000. 

Both types of investments have positives, as well as negatives.  The traditional IRA is tax deductible. A Roth IRA contribution is non-deductible.  The traditional IRA applies a penalty for early withdrawal, where as the Roth IRA does not.  Also, with the Roth IRA, there are no minimum distribution amounts required like there is with the traditional IRA.  The greatest advantage of the Roth IRA investment is that it allows your investment earnings to be tax free.  Basically, it allows your money to grow without taxing the earnings.

Another nice benefit from the Roth IRA investment plan is that it allows an individual to convert their traditional IRA's into a Roth IRA.  The premature withdrawal penalty is not applied to this plan.  There may be, however, a conversion tax that is due at the end of the year. With the traditional IRA they do apply a 10% early withdrawal penalty if money is taken out prematurely.  The Roth IRA rules also apply to the beneficiary if needed, as well.

A financial advisor can help you decide whether a Roth IRA investment plan is right for your specific needs.  There are also many helpful websites that offer assistance and information on IRA's.

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