I think that everybody should have a Roth IRA! It is more fun that David Lee Roth! And by fun, I mean not paying taxes on the future earnings!
First the Basics:
|2010 Roth IRA Income Limits|
|(The Numbers below are MAGI number not Gross earning!)|
|Type of Filing||Full Amt if Less than:||Phase out range:||Nothing if over this:|
|Married Filing Jointly||$166,000.00||$166,000 to $176,000||$176,000|
|Single||$105,000.00||$105,000 to $120,000||$120,000|
What is the contribution (the amount you are depositing for the year) limit for 2010?
2010 Combined Traditional and Roth IRA Contribution Limits (taked straight from the goverment site: http://www.irs.gov/ )
If you are under 50 years of age at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
If you are 50 years of age or older before 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.
Okay, now for the stuff I want to write about!
Why do I like Roth IRAs?
- You can withdrawal your contributions at any time (but not your earnings without incurring penalties and taxes)
- This is your discretionary income (take home pay), so this amount can be tucked into an Roth IRA, and it will grow without being taxed, since it was already taxed when it was your gross pay. Beats putting the money in a regular brokerage account and getting taxed every year on dividend, interest or capital gains tax.
- It’s a perfect emergency fund! Since you can pull your contributions out at any time tax and penalty free. Just don’t pull out any of the earnings from the contribution amount, those would be tax at your current marginal rate, and also carry a 10% penalty hit!!!
- You can pass this down to your children when you die and they won’t have to pay taxes on it!
- You can use a part of the IRA amount to help buy a first time house.
- You can create them for your kids, and make them potentially rich (as long as they have earned income) someday.
So how do I use my Roth IRA?
I use my Roth IRA for 2 purposes:
I use it as an Emergency fund. I don’t ever expect to need it, so this is the perfect vehicle for it in my opinion!
I also use a small portion of my Roth IRA to buy high beta stocks. This is good because if the stock appreciates like nuts and I have capital gains, I don’t get taken down by taxes on those huge gain. But if it’s bad (because of the economy), like it has lately, you can’t take the tax losses against your earned income.
Okay, that covers what I like about IRA’s!
Are there an additional aspects of the Roth that you can identify? Perhaps you use the Roth for something special? Or maybe I missed a benefit?
Anything you can add would be appreciated!