IRA Comparison
The government has imposed an income maximum for eligibility to contribute into a Roth IRA. In general, if you are single, or if you are married and filing your tax returns separately, you must have an annual income of less than $116,000. If you are married and are filing a joint tax return, your income cannot exceed $169,000. Your First Investors registered representative can give you more details about the income limits of a Roth IRA.
In 2008, eligible single working Americans may be able to contribute up to $5,000 into IRAs (or the sum of their earned income, whichever is less.) A married taxpayer in a single-income household may be able to contribute up to $10,000. Americans over the age of 50 may contribute an additional $1,000 a year. It is important to note that contributions made into a Roth IRA will reduce the allowable amount of money you can contribute into a Traditional IRA account. These contribution amounts may be reduced or eliminated based on the client's income and tax filing status.
Contribution Limits for Traditional and Roth IRAs
| IRA: Traditional/Roth | ||
|---|---|---|
| Year | General Limit | Catch-Up Over Age 50 |
| 2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006 | $4,000 | $5,000 |
| 2007 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
| 2009 and on | * | $1,000 above General Limit |
Because it was intended to be a retirement planning vehicle, taking money out of your Roth IRA account before you reach the age of 59½ will generally result in a 10% penalty, in addition to being subject to ordinary federal income taxation. There are exceptions to this rule, and your registered representative can explain them to you.
While a Traditional IRA requires that you begin taking distributions by the time you are 70½, Roth IRA distributions can be postponed indefinitely. This means that you can put your Roth holdings in reserve for later in your retirement, or even pass them onto your heirs. (While your holdings will be exempt from federal income taxes for your heirs, there might be estate-tax implications.)
