Retirement Planning with Roth IRA

A Roth IRA may be a  retirement  option for many. It accrues earnings tax free though it offers no tax deferral. Anyone can set up a Roth IRA any year in which she or he has self employment income or other taxable compensation, as long as they income doesn’t exceed the set Roth  retirement  IRA limit.

A Roth IRA is simply an individual savings or  retirement   plan . Payments are non deductible and allowed until the set limits for the year have been reached. So, while the  retirement  planner can make Roth IRA contributions that can not take it as a deduction on income tax. Most withdrawals are tax free, though there are limitations on that.

To set up a Roth IRA for  retirement  savings, it must be done with a financially institution approved by the Internal Revenue Service (IRS.) This could be a bank, a brokerage firm, an insurance firm and some credit unions.

The advantage to using a Roth IRA as part of a  retirement  program is that the owner can make contributions after age 70 ½. The Roth IRA is not restricted because of another  retirement   plan  such as one that is employer sponsored. Withdrawals are tax free if the owner of the plan is buying her or his first home. The other tax free situation is if the owner is at least 59 ½ years of age and it’s been 5 years since starting the Roth IRA  retirement  program.

There are some disadvantages to  planning   retirement  funds through Roth IRA. First, early withdrawals are heavily penalized and fully taxable. The penalty is 10 percent. The contributions are limited to $4000 a year for those under 50 years of age and $5000 for 2006 and 2007, and $6000 for 2008.

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