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What You Should Know When Starting a ROTH IRA

February 2, 2013

    Starting a ROTH IRA: What You Need to Know

    A Roth individual retirement account (Roth IRA) is a personal savings plan that offers certain tax benefits to encourage retirement savings. There are a few key things you should know when starting a Roth IRA.

    1. Contributions are not tax deductible. Contributions to a Roth IRA are never tax deductible on your federal income tax return, which means that you can contribute only after-tax dollars.

    2. Tax-free distributions. Amounts contributed to the Roth IRA grow tax deferred and, if certain conditions are met, distributions including both contributions and investment earnings will be completely tax free at the federal level.

    3. An IRA is not an investment. A Roth IRA, like a traditional IRA, is not an investment, but a tax-advantaged vehicle in which you can hold some of your investments. You need to decide how to invest your Roth IRA dollars based on your own tolerance for risk and investment philosophy. How fast your Roth IRA dollars grow is largely a function of the investments you choose.

    4. Contribution Limits. For 2013, you can contribute up to the lesser of $5,500 or $6,500 if you’re age 50 or older or 100 percent of your taxable compensation to a Roth IRA. You may also be able to contribute up to $5,500 to a Roth IRA in your spouse’s name even if he or she receives little or no taxable compensation and if your spouse is 50 or older you can contribute up to $6,500.

    5. Income Limitations. Not everyone qualifies to use the Roth IRA. Even if you do, you may not qualify to contribute the annual maximum. The amount you can contribute to a Roth IRA depends on your modified adjusted gross income for the year and your federal income tax filing status. If you file your federal income tax return as single or head of household and your modified adjusted gross income for 2013 is $112,000 or less, you can make a full contribution to your Roth IRA. Similarly, if you file your return as married filing jointly or qualifying widow(er) and your modified adjusted gross income for 2013 is $178,000 or less, you can make a full contribution.

    There are some excellent advantages to a Roth IRA and it might be beneficial to your financial planning to consider these advantages.

    So make sure you have your financial affairs in order and a good way to start this process would be to contact me by e-mail at or call me toll free at (888) 914-9909. I would be more than happy to review your financial situation with you to make sure your financial house is in order, and thank you for joining me this week for your retirement minute.

    Until next week!

    Have a retirement planning question for John Bearss? Send it to him here.

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    Disclaimer: Investing involves risk. Always do your own due diligence and consult a trusted financial professional before making any investing or financial decisions. John Bearss is a retirement specialist.  He is also a registered representative of and offers securities through SICOR Securities, Inc., Member FINRA, MSRB, SIPC, 6500 Poe Avenue, Suite 105, Dayton, OH 45414 | (937) 890.3101. Neither SICOR Securities, Inc., Lifetime Decisions Management nor their representatives provide legal or tax advice. Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. and SICOR Securities, Inc. are not affiliated.

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