Roth IRA

In contrast to a Traditional IRA, neither contributions made to a Roth IRA, or earnings from those contributions, are tax-deductible. Earnings on contributions, however, are taxed as capital gains, not ordinary income. Withdrawals are generally tax free when the account has been opened for at least 5 years and the owner's age is at least 59 ½. Prior to that age, withdrawals of contributions (but not earnings) can be done without incurring taxes or penalties. Therefore, a Roth IRA is an attractive choice for individuals who think their income tax rate in retirement will be relatively high, or who might need to make withdrawals before age 59 ½. In addition, a Roth IRA may be a good alternative for individuals whose income is too high to qualify for the Traditional IRA tax deduction.

For tax reasons, a Roth IRA may make an attractive complement to a company 401(k) plan, or other tax-deferred retirement plan, since the tax-deferred plan provides immediate tax savings while the Roth IRA allows tax-free withdrawals.

There are Contribution Limits that apply to a Roth IRA:
Age 49 and below: $5000/yr
Age 50 and above: $6000/yr (includes $1000/yr of “catch-up” contributions)

There are also some Income Limits to qualify for a Roth IRA:

Filing Status	Full Contribution	Contribution Phased Out
Single Filers	Up to $101,000	$101,000 - $116,000
Joint Filers	Up to $159,000	$159,000 - $169,000

Advantages of a Roth IRA

• The biggest advantage of a Roth IRA is tax free withdrawals on principal contributions and all earnings.
• Absence of minimum withdrawal requirements allows greater withdrawal flexibility than with a Traditional IRA.

Disadvantages of a Roth IRA

• Not everyone qualifies for a Roth IRA because of the income limits.

Distributions

Withdrawals without penalty can begin at age 59 ½, provided contributions have been in the account for at least five years. An attractive advantage of a Roth IRA is that there are no forced withdrawals, allowing investors to withdraw money only when desired. In addition, withdrawals of limited amounts are permitted for home purchase down payment, qualified education expenses and unreimbursed medical expenses.