Establish Your Investment Portfolio: Roth IRA VS. The Traditional IRA

When you begin to talk about retirement you should consider how IRA's can assist you with your retirement planning. With Ira's you have two types the Traditional and the Roth Ira. Both can help you meet your retirement goals and there are certain things that are specific to each type.

First lets examine the Traditional Ira. These types are geared towards those individual that are in their peak earning years, it's when your income is the highest. This is in regards to the time when your income is going to be the highest during the life cycle. Now with the traditional Ira your investment earnings will accumulate tax-free until you are ready to withdraw the funds. This practice is also known as tax-deferred. What's so advantageous about the Traditional Ira is you earn interest while gaining tax advantages during the years when your income is the highest. You are also able to withdrawn the money after age 59 without penalty and this of course is during the time when your income is lower therefore you are in a lower tax bracket, so even though you have to pay taxes it won't be as much become, as stated you are in a lower tax bracket.

Contributions may be tax deductible. I would like to repeat that contributions may be tax deductible. To be on the safe side it is a good idea to check with a tax advisor to see how this is going to work with you own particular situation.

It could also put money back into your pocket by lowering your taxable income, and it will depend on your income, how you file your taxes, and whether or not you participate in a employer sponsored plan. Again as mentioned before please check with your tax advisor. Also the amount of contributions per individual increase per year, which in effect allows you to increase the dollar amount you set aside for retirement each year.

What are the requirements for participation?
You must be under the age of 70 for that entire year and you must have earned income to be eligible to make contributions. For the tax year 2007 if you are age 50 or below the maximum amount of your contributions are 100% of your earned income however your contributions cannot exceed $4,000. And for individuals between 50 and 70 you can contribute 100% of your earned income however contributions cannot exceed $5,000.

Any time during the contribution period if you are eligible you may contribute the maximum annual amount. There is a cut off for the contributions. You can make contributions by April 15 of the current year, for the previous tax year.

How soon can you begin to withdraw your money? You may begin to withdraw your money without penalty at the age of 59 . However you must start to make withdrawals by the age of 70 and they should begin by April 1st following the year in which you reach the age of 70 . Now let's say you were to pass away then your beneficiary can withdraw at that point in time, (upon your death), assuming you are the primary owner. As always there are certain exceptions in regards to the withdrawals. If you are a first time home buyer you can withdraw without any type of penalty or individuals on disability may also withdraw without any type of penalty. However these two types of withdrawals are subject to income tax.

Roth Ira

A Roth Ira is for a person who is looking to be in a higher tax bracket when they retire as opposed to where they are now. Also you don't have to pay any taxes on earnings if you have had the account for 5 years and you start taking distributions or withdrawals by the age of 59 . This applies if your distributions are for things such as you being a first time homeowner or if you have a disability.

With a Roth there is no age limit on your ability to make contributions, however you must have earned income. If you are a single person then your adjusted gross income must be below $110,000 to contribute and if you are married and you file jointly, your adjusted gross income has to be below $160,000 to contribute to the Roth Ira.

For the tax year 2007 you can contribute 100% of your earned income but your contributions cannot exceed $4,000 and this applies to those individuals that are under the age of 50.

For the tax year 2007 you can contribute 100% of your earned income but your contributions cannot exceed $5,000 and this applies to those individuals that are over 50.

If you want to start your withdrawals they have to be started after age 59 to avoid the penalty. Unlike the traditional Ira the Roth has no type of qualifications that force you to start your withdrawals or distributions. If you pass away your beneficiary may begin distributions and that's assuming you are the primary owner of the account. You can also take distributions or withdrawals with out any type of penalty if you are a first time home buyer or if you are a person with a disability, and the funds have been invested for at least five years. Limits may apply. Also you may want to note that these distributions will not be taxed.

To Your Great Success

Mel Richardson
www.visionstarenterprises.com
Melvin21@msn.com