With regular IRAs:
- You contribute pre-tax money and thus save on your current taxes by lowering your taxable income
- Your contributions and earnings will be subject to taxation upon withdrawal
- You must begin withdrawing money at age 70½
With Roth IRAs:
- You contribute after-tax money and thus gain no upfront tax-savings benefit. But …
- Your contributions — and earnings — will never be taxed again, so long as you meet the basic guidelines (eligible age of 59½ and held for at least five years)!
- Plus, you never have to make minimum withdrawals, even if you live to be 110.
Both accounts …
- Give you a huge range of investment choices, pretty much everything offered by your broker.
- Can be funded until April 15 of the following year. In other words, you can put money in for 2008 as late as April 15, 2009.
- Allow catch-up provisions for contributors over the age of 50. In 2008, the regular limit for either IRA is $5,000 and $6,000 for age 50+.
Important: You can only contribute to a Roth IRA if your Modified Adjusted Gross Income (MAGI) falls within certain levels. The eligibility for these accounts phases out at certain modified adjusted gross income (MAGI) levels. So there’s no way for some people to know if they’ll qualify until they’ve done their taxes.
Here are the two, major Roth IRA MAGI category limits for the 2008 tax year…
- Single Filing Status: $101,000 or less for maximum contribution. Partial contribution between $101,001 and $115,999. No contribution over $116,000.
- Married Filing Jointly: $159,000 or less for maximum contribution. Partial contribution between $159,001 and $168,999. No contribution over $169,000.
Regular IRAs, on the other hand, have no income restriction for contributions, though the tax deductibility can be affected by MAGI.
There are no age restrictions for Roth IRAs — as long as you have earned income you can start socking away money. Your ability to contribute is also not affected by any retirement plan you might have through your employer. Get the insider scoop on IRAS right now.
To your dividend investing success,
InvestingIndividends
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