Roth IRA: Invest And Save On Taxes

2007-03-08 10:33:40

( Financial )



If you have been pondering on what investment vehicle is best to buy for your retirement or for the college education of your child, you may want to check on the government's Roth IRA (Individual Retirement Arrangement) plan.

Roth IRA is effectively bigger than a traditional IRA because it holds after-tax dollars. Your investment earnings completely escape income taxation provided you satisfy the needed requirements.

You can set up a Roth IRA at any time. There are income limits to qualify for opening a Roth IRA. If you foresee that at some point in your career your income will increase, then it is wise to open a Roth IRA now that you are young and can still meet that particular requirement.

Contributions can be made to your Roth IRA regardless of your age. You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (excluding extensions). Be aware that there is also a contribution limit to a Roth IRA.

In case you contribute too much, keep in mind that an excise tax will be applied to any excess contribution to your Roth IRA. However, you can avoid the imposition of the excise tax on your excess contribution. You can simply withdraw the excess contributions on or before the due date for the filing of your tax return for the year.

If you have an existing traditional IRA, it's possible for you to rollover to Roth IRA or to open a new Roth IRA. You will want an investment strategy that offers the best potential to provide sufficient income for you during your retirement or for helping to cover your child’s college education. It is best to consult a financial planning specialist who can help weigh the options and do the math.


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