Roth IRA Qualifications You Need To Know About
In a world where the social security system seems to be in jeopardy, we should all be investing into our own private retirement accounts. One such account that can be invested in is a Roth IRA.
Unlike traditional IRA’s, a Roth IRA does not provide a tax deduction for a contribution during the year of the investment. Instead, a Roth IRA provides the benefit of your earnings in the IRA going untaxed. For many Americans, investing in a Roth IRA will result in a much smaller tax hit in the long run.
In order to make this investment you must meet certain Roth IRA qualifications. The first qualification is that the individual or couple must have a lower adjusted gross income than the maximum allowed. This figure varies from year to year and should be easily found by your investment adviser. In each year you can only invest up to your adjusted gross income if your adjusted gross income falls within the allowable investment. For example, if this year the maximum investment for an individual into a Roth IRA is $5,000 but the individual only made $3,000, then they can only invest that $3,000.
If you invest in a Roth IRA and your adjusted gross income threshold rises above the maximum amount allowed for contribution, you may no longer invest in that account. However, you will still be able to hold that account and withdraw from it upon retirement without paying a tax penalty.
If an individual or a couple’s income qualifies them to invest in a Roth IRA, they need to find and approved financial institution with which to invest. These can include banks, credit unions and brokerage firms. After finding a financial institution with which to invest, an individual must meet the contribution deadline which is the same as tax day, April 15th.
It is also possible to roll your traditional IRA into a Roth IRA and at that point the withdrawal tax ramifications will stop. In other words, if you had a traditional IRA for 5 years, and then you roll it into a Roth IRA for 15 years, you will pay taxes on the first 5 years upon withdrawal but not on the last 15.
Whether choosing a traditional or Roth IRA to invest in, it is important for all individuals to invest in their future.