What is a Roth IRA?
A. A Roth IRA is an individual retirement account created by the Taxpayer Relief Act of 1997. Named for former Senate Finance Committee Chairman William Roth, Jr., this IRA offers more incentives to boost your retirement savings, as well as more ways to use your nest egg. This article is not intended as tax advice. Contact a tax professional.
Contributions made to a Roth IRA are not deductible when made, but the earnings accumulate tax-free, and distributions, both of the principal and interest, are also tax-free so long as they are qualified distributions. The overall limit for regular deductible and Roth IRA contributions in 2007 is $4,000 for single taxpayers and $8,000 for married taxpayers, thus the amount which can be contributed to a Roth IRA is the amount of the limit remaining after subtracting any contributions made to a regular IRA. The contributable amount is phased out for single taxpayers for modified adjusted gross income between $95,000 and $110,000 and for joint filers for incomes from $150,000 to $160,000. If you are age 50 or older, you may make additional “catch-up” contributions to your IRA. For 2007 the catch-up contribution is $1,000.
A Roth IRA is an Individual Retirement Account – a retirement investment account you establish for yourself, whether you’re employed by a company, or self-employed. It is the only IRA into which you contribute tax-paid (not tax-deferred) money. The accumulated growth in a Roth IRA Account is tax-free and so you don’t pay more tax on your money when you withdraw it. You can make contributions beyond, and make withdrawals before, age 70 1/2. And you are not obliged to begin distribution at that age either.
