|
In order to be able to derive benefit from a Roth IRA, you have to meet certain criteria set and you can contribute money to the account. All contributions to a Roth IRA are done after tax deductions so your funds can grow tax-free and you do not have to pay any taxes when withdrawing funds from the account.
In addition, having a Roth IRA means not having to pay penalty for early withdrawal, which you have to do for other types of retirement savings plans. As you contribute money after taxes, you cannot avail tax deduction when you file your income tax.
The federal government has prescribed Roth IRA contribution limits, and these limits keep changing every year. For the year 2008, Roth IRA contribution limits are as follows:
- For people 49 years and less, contribution limit is $5,000
- For people 50 years and above, contribution limit is $5,000 plus $1,000
After 2008, there will be an increase in the contribution limit by $500 for each year. This amount can be adjusted depending on the level of inflation in the US. This means that in 2009, Roth IRA contribution for people who are 49 and below will be $5,500 and for 2010, it will be $6,000.
Contributions to a Roth IRA need not be in lump sum. You can spread the contributions over 12 months. For instance, if you want to contribute the maximum allowed over 12 months, you can pay $417 each month; or you can pay $5,000 over 4 months, which would work out to $1,250; or you can break the payment into two and pay $2,500 every 6 months.
You cannot carry forward maximum contribution from one year to the next. For example, if you contributed just $2,000 in 2007 while the maximum limit was $4,000, you cannot contribute $7,000 (balance $2,000 from 2007 and $5,000 for 2008) in 2008.
More Articles :
|
