IRA Contribution Limits

Thinking about looking into Roth IRA rules? Wondering about Roth IRA contribution limits? Don't expect to be the only one who is beginning to think about retirement plans. The retirement of the baby boom generation has many implications for the Social Security program. Although some claim that the program is set to begin paying out more than it takes in at 2020, and that Social Security will be unable to pay full benefits by 2040, it is unlikely that these predictions will ever take place. Interested parties will no doubt be sure to institute policies to offset these dire predictions, and, increasingly, employees are beginning to take the responsibility to provide for their own retirement years. It is a sobering yet exciting position to be in to know that one's financial situation tomorrow will in some measure depend upon the financial choices which are made today.

Retirement accounts are not the total answer to the situation, and many facets of life are outside of one's personal control. This is a good time to remember that Jesus Christ said, I am the vine, ye are the branches: He that abideth in me, and I in him, the same bringeth forth much fruit: for without me ye can do nothing. (John 15:5) However, after recognizing that a person is never totally self-reliant, one tool that can be used in responsible planning for retirement is to become familiar with Roth IRAs.

There are several advantages of Roth IRAs over traditional IRAs and other retirement accounts. It is fairly easy to be able to contribute money toward a Roth IRA. There are no age limits to opening such an account, provided one can meet several general requirements. Taxable compensation (such as wages, tips, professional fees, and bonuses) must be sufficient to equal contributions. There are Roth IRA contribution limits. For 2008, these limits are the smaller of these amounts: $5,000 or the taxable income for the year for those under 50 years old, and, for those 50 and older before 2009, $6,000 or the taxable compensation for the year. Each year, adjustments to these figures will be made for inflation. Other Roth IRA contribution limits may be imposed if the modified Adjustable Gross Income (AGI) is above a certain level. The AGI is the amount on the tax return before claiming the standard deduction, any itemized deductions, or the deduction for personal exemptions. Contributions can be made any time during the year up to the tax return due date.

Some people will not be able to determine their income before deciding on the amount to contribute to a retirement account. If the income increases, or unexpected bonuses are received which puts one over the Roth IRA contribution limits, penalties can be avoided by correcting this before the day the tax return is due. This illustrates another way that the Roth IRA rules are beneficial. Not only is it fairly easy to put money in, but it is also easy to take it out when needed. Owners can usually withdraw at least some of their money before age 59.5 without a penalty. Details may vary, but generally the owner may withdraw up to the amount they have contributed without tax penalty. The account may have to have been opened for at least 5 years.

Further advantages to Roth IRA rules are the fact that contributions have already been taxed. Although there will be no current tax deduction gained from deposits into a Roth IRA, there is a tax advantage in that the money is hopefully taxed at a lower rate than retirement accounts which are taxed at withdrawal in retirement years. . One of the most intriguing benefits is that the possibility exists of having even the investment earnings be tax free. Also, all other retirement plans require withdrawals to be made based on age, while money held in such an account can continue to keep accruing interest even in latter years if that is what is desired.

A person may be able to make contributions to a Roth IRA even if he or she is already participating in an employer's retirement plan. This is true even if the contributions are made to a Roth account in a 401k or 403b plan, because the contributions are considered to be made by the employer. (Yes, the money still comes out of one's own paycheck.) The Adjusted Gross Income can not exceed certain levels. In 2008, this amount is $101,000 for a single individual and $159,000 for married couples filing joint returns.

Perhaps in promoting the many benefits of Roth IRA rules, the fact should be mentioned that there are fairly heavy penalties if a person withdraws the earnings part of the account. Federal income tax plus a 10% penalty on the amount may nudge one towards making other plans. There are several exceptions, such as the options available for taking up to $10,000 in earned withdrawals if the sum is to be used to buy a principal home. The house must be bought by the account owner, spouse or descendants. Such an owner or qualified relative must be one who has not owned a home in the previous two years. Some other exceptions exist for paying educational expenses. Be sure to check for the details which may apply to a person's particular circumstances. In researching, be certain that the information you read on the Internet is confirmed on a '.gov' site or is found on the actual IRS site, so that erroneous information does not lead to poor decisions. However, there is much to be gained by taking the time to explore the benefits of a Roth IRA.