Roth IRA Rules

Here are the Roth IRA rules which you must follow when managing your retirement fund. But first let’s explain Roth IRAs a little.

So, what is a Roth IRA? This is a retirement account which you can use in order to put away after tax dollars and make a tax free return on your money. When investing in a Roth IRA you may have to pay taxes ahead of time, but you do have some advantages over other retirement plans because of it.

Here are some of the Major Advantages of the plan

1. Pulling out Your Money Early – other plans will hit you with a 10% penalty if you withdraw from them before age 59 ½. Not true with a Roth IRA. As long as you only withdraw the money that you originally invest into the plan you will not have to pay any taxes or penalties on the money which you took out early. Now if you try to take out the interest that you made on the plan early, that is a different story.

2. No Manual withdraws – Again most other retirement plans force you to withdraw after age 70 ½. There is no manual withdrawal here. If the government is not going to be able to tax you on your withdraws they do not care whether you ever take it out or not.

3. Tax Free After 59 ½ and 5 years – Getting a tax free income after you retire can be a great thing. If you opened the plan 5 years ago or more and are at least 59 ½ you can take the money out tax free.

Deposits

So, how much can you deposit? Well the Roth IRA rules say that for the year 2011 you can deposit up to $5,000 a year or $6,000 if you are over age 50. But there is a catch, you may be limited on how much you can deposit if your income is too high.

Here are the income limits for roth ira for 2009.

1. If you are single and make under $105,000 a year or married and make less than $166,000 a year combined you can contribute the full amount. If you make over that the amount you can deposit is greatly reduced.

2. If you and your spouse both file separately for a plan you may have a total combined deposit of $10,000.Of course any money you do deposit can grow tax free until you do eventually take it out.

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