Ways that Learning the Rules should Help in Increasing Your Roth IRA Potential
Retirement plans are excellent tax shelters,Guest Posting but you need to understand Roth IRA rules and other contribution requirements to maximize those tax savings. Essentially, contributions to a retirement savings plan are made on a pretax basis – employers match employee contributions to a plan, but that “income” isn’t taxable until it’s received, once the employee has retired.
With a Roth IRA, the contributions aren’t deductible, but income earned and future withdrawals are tax free.
To learn more about traditional and Roth IRA rules and how to maximize your contributions and savings, keep reading.
The Roth IRA
Roth IRA contributions are limited at $5000 per tax year. However, if you’re 51 or over, you can contribute up to $6000 to a Roth IRA. In 2009, those contribution limitations are expected to increase based on current inflation rates. They will go up in $500 increments.
Unfortunately, there are income https://s3.us-east-1.wasabisys.com/are-gold-iras-good/are-gold-iras-a-good-idea.html eligibility requirements for a Roth IRA. Essentially, you can only make the maximum contribution if your Modified Adjusted Gross Income (MAGI) falls below a certain level. For example, a married couple may earn between $150,000 and $160,000 or lower and a single person can earn between $95,000 and $110,000 or lower. Otherwise, they must opt for a 401(k).
401 (k) Roth
Employees can now opt to make some of their elective retirement contributions Roth contributions. Historically, any deferred salary or 401(k) contributions were deducted from your taxable wages. However, any contributions considered Roth contributions to a 401(k) Roth are now included in a person’s taxable wages, though they may be free from federal income taxation.
The beauty of a Roth 401(k) is that there are no income restrictions on it. That means that no matter what your Modified AGI is, you can make contributions to a Roth 401(k). Also, the contribution limit is much higher. For those 50 and under, it’s $15,000 and $20,000 for those over 50. There’s also potential of a greater return on investment (ROI) thanks to the higher contribution limits.
