February 4, 2015

Who can contribute to a Roth IRA? What should they consider when doing so? Where? Why?

3 thoughts on “February 4, 2015”

  1. Garrett Haag says:

    People can contibute to a Roth IRA if they have earned income for that year and fall under the maximum income levels. The amount you can put in dwindles a little bit once you hit an income level and will stop once you reach the end of that level. In 2015, phase-out range for a Roth IRA is $183,000 to $193,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $116,000 to $131,000. You can put in up to $5,500 in to your account if you are under 55 and can put in $6,500 in to your account if you are over that age in the catch up period. The money you put in to a Roth is after tax income, so you have already been taxed on it. In a Roth the earning you make will not be taxed if you take it out for the right reasons, such as retirement or first time home buying. You can always take out the initial investment in to your Roth without penalties if you use a good institution. You do not want to take the money out due to not being able to put it back for max contributions reasons. Vanguard.com has a good option for a Roth Ira that should be looked in to.

  2. Mike Dunlop says:

    An individual can contribute to a Roth IRA under the following circumstances:

    -They have earned income.

    -They have not contributed the maximum contribution to a traditional IRA

    -Their earned income does not exceed the phase out threshold ($193,000 and $131,000 for married and singles respectively)

    When contributing to a Roth IRA you should consider the tax implications and benefits as it may make more sense to contribute to a traditional IRA.

    At low wage levels, a Roth IRA is more beneficial from a tax perspective. A Roth IRA contribution is made with post tax dollars. At lower income levels, the tax deduction may not have as much impact as it would with higher income levels. Therefore you would forego the current tax break for the later tax break.

    At higher wage levels, a traditional IRA may make more sense because of the deduction received from the contribution would lower you taxable income and possibly your marginal rate as well. A traditional IRA contribution is made with pretax dollars. Lowering your current taxable income may have a bigger impact than the taxes owed when you withdraw your money later.

    When contributing to a Roth IRA, people should follow the advice of people like Warren Buffet or Burton Malkiel and put their money in low cost index funds that are diversified throughout the world. This will ensure that they are as diversified as possible.

  3. Mike Finley says:

    You two gentlemen covered the point quite well. Keep in mind the catch up contributions start at age 50. That is when you can add an extra $1,000 to your Roth IRA. In 2015, that amount would be $6,500. Let me add one more point.

    (1) A non-working spouse can open a Roth IRA with no earned income as long as her working spouse makes enough money to warrant her contribution. If the working spouse makes $50,000 for example and they are both 40 years old, both individuals could contribute $5,500 to their own separate Roth IRAs. Keep this in mind if you have a non-working spouse in your family. Roth IRAs for all!

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