The Roth IRA was created in 1997 when Congress passed the Taxpayers Relief Act.  The Taxpayers Relief Act was designed to encourage working Americans to save money for retirement.

There is no age limit on contributions, so anybody can open one of these accounts.  Roth IRA’S can be opened through an independent brokerage service, or through your bank.

With a Roth IRA, the earnings on any investment grow tax free.  Your distributions on the account go untaxed as well.  What does this mean?  When you withdraw your money at retirement age, the money is not taxed by the IRS on this income.  A Roth IRA lets you withdraw any contributions you make, at any time with no penalties and they are tax free.  This does not apply to withdrawing earnings.

Most Americans qualify for a Roth IRA.  It depends on your tax filing status and your income.  Currently single taxpayers are able to contribute the maximum amount that is allowed into their Roth IRA, if their annual gross adjusted income (AGI) is less than $95,000.  If you make more than $95,000 (up to $110,000), you are still able to contribute, but at a reduced maximum.  If your AIG is over $110,000 you do not qualify for a Roth IRA.

If you are married and file taxes jointly, the limits are $150,000 for maximum contributions, and $160,000 for reduced contributions.  Any amount over that, disqualifies you.  If you are married, but file separate tax returns you do not qualify for a Roth IRA.

Retirement can be scary.  A Roth IRA is a great way to start preparing for retirement.

If you already contribute to a 401K plan, you can still participate in a Roth 401K plan if it is offered by your employer.  The combined total contributions can not exceed what the IRS (Internal Revenue Service) limits for individual plans.  An employee that participates in both plans can designate the amount to go into each plan.  Once the decision has been made you can not switch money among the plans.

Below are some other things you should know about Roth 401K plans:

• Employee contributions are made with after tax dollars.
• Investment growth accumulates without any tax consequences.
• There is no income limit to participate.
• Withdrawals of contributions and investment growth are NOT taxed provided you are at least 59 ½ and the account is held for at least 5 years.
• Distributions must begin no later than age 70 ½ (this is subject to change).

If your employer provides a matching contribution to a Roth 401K plan, two accounts are set up for each participant.  The first account contains the employee’s after tax contributions that are distributed tax free.  The second account contains the employee’s before tax contributions and any investment growth.  These funds are taxable when distributed.

You should always take advantage any time your employer offers to match contributions to your Roth 401K plan.  This is extra money you will have at retirement.

PROS:

• You have already paid taxes on your contributions, so you can withdraw them anytime penalty and tax free.
• You can use up to $10,000 tax free if you are using the money to buy your primary residence.
• Conversion from a Traditional IRA can be done free of charge.
• Roth conversion funds can be withdrawn with no penalty.  5 years must have passed on the converted funds.
• You do not have to make decisions based on your age.  If you do not need the money, you are able to leave it to your heirs.

CONS:

• Contributions are not tax deductible.
• Eligibility is based on income.
• Tax benefits may not be realized unless you live to withdraw your contributions.
• The rules that let you withdraw contributions tax free are always subject to changes by Congress.

Roth IRA eligibility is based on income.  A taxpayer can contribute the maximum amount.  Currently the maximum contribution amounts are $5,000.  If you are 50 years or older, you can contribute $6,000.

As you can see, there are more pros to having a Roth IRA than there are cons.  If you are looking for a good way to make the most of your investments, it is with a Roth IRA.  Your money grows tax free for as long as you let it.  When you get ready to retire, you do not want to have to worry how you are going to make ends meet.  A Roth IRA is a great way to make sure you have the money you need for your future.

Do you meet the income requirements?  Your earned income, with an adjusted gross income on your taxes of less than $95,000.  You can make a partial contribution with an adjusted gross income of $95,000 to $110,000.  If your adjusted gross income is over $110,000 you are not able to contribute to a Roth IRA.

When will you need to access the money?  A Roth IRA has the advantage of letting you take out money at any time without penalties or tax consequences.  This is because the money you have invested is after tax income.  If you have an emergency, you have access to your money.

A Roth IRA lets you keep the money invested past the age of 70 ½.  If you are planning to work into your 80’s or 90’s, this could be ideal for you.

If you are self employed or change jobs frequently a Roth IRA is a good choice.  You do not have to keep rolling over the money to new investment plans, it can stay in your Roth IRA regardless of where you work or who you work for.

Now all you have left to decide is what mutual fund company to invest in.  Many mutual fund companies will let you access your account online, so you get to watch your money as it grows.

With a self directed IRA you have more control of your investments, and you can invest in non-traditional investments.  Some of these investment choices could be real estate, mortgages, or even a business.  Before putting your money in these investments you will need to find a custodian that will accept these investments.  The custodian will help you set up a self directed IRA.

Find a custodian you feel you can work well with.  You want to find someone who will listen to you, what you want to do, and help you find ways to do it.  Your custodian should also be someone with experience with self directed IRA’S.

Roll your assets over into a self directed IRA.  This should take about 7-10 business days.  Study up on investments that you are interested in.  You can invest in almost anything you can think of.

If you have the funds, consider investing in real estate.  You can make a nice profit investing in real estate through a self directed Roth IRA.

As always you should have a diversified portfolio.  You may want to think about pulling out of high risk investments and put your money in safer stocks and bonds.

Using your Roth IRA to pay for college expenses helps provide you and your family with financial aid.  Not all parents who have a Roth IRA recognize this specific feature of their retirement accounts.  Study the key features of your Roth IRA to help you understand the procedures, rules and guidelines.

One of the most significant features of a Roth IRA pertains to college financing.  You can get distributions at any time, if you need the money for educational expenses.  If you use your Roth IRA for college expenses, you are authorized to make distributions on the principal value of the account.  There is some good news.  You will not incur any federal taxes or penalties from the IRS (Internal Revenue Service).  The interest your contributions gained can be maintained and secured in your Roth IRA account until you retire.

Normally, early withdrawals and distributions in an IRA will obtain taxes, but not if you are using your contributed money for college expenses for your child.  A specific stipulation of a Roth IRA gives you the privilege of avoiding the 10% penalty for early withdrawals.

With a Roth IRA, you are not only saving for your retirement, you are also helping to establish a better life for your children, by being able to pay for them to get a higher education.

• If the Roth IRA account holder becomes permanently disabled, you can withdraw the funds without penalty.
• If the event of the account holders death, his or her estate will not have to worry about penalties for early withdrawal.
• If the Roth IRA account holder is seriously injured or ill, and prolonged medical care is needed, the early withdrawal penalty is waived.  The medical expenses have to be more than 7.5% of the account holders annual gross income.
• If you are purchasing your first home, you can withdraw $10,000 from your Roth IRA without penalty.  Remember this is a lifetime limit.
• If you have any urgent educational costs for you, your spouse, children or grandchildren, you can safely withdraw from your IRA.  You will still be required to pay taxes on these withdrawals.
• If the IRS has placed a levy on your wages to pay back taxes, you can use your IRA to withdraw money and settle your tax debt.
• If you have been unemployed for more than 12 weeks and you need money to pay your medical insurance premium, you can use your IRA to help make the payments.

These withdrawal exceptions are very specific, and can only be used in case of emergencies.  It is good to have a Roth IRA in case the unexpected happens.  The money is meant for retirement, but we can not predict when an emergency may hit.

A Traditional IRA is a tax deferred retirement plan.  Contributions made to a Traditional IRA may be tax deductible depending on income, tax filing status, and some other factors.  Contributions made to a Traditional IRA are made on a pre tax basis, which means the money is invested before it is taxed.

Investing pre tax money is that it has the potential to lower your current tax bracket, and your money will grow tax free until you withdraw it.  Withdrawals that are qualified will be treated as ordinary income and may be subject to income tax.

Anyone can contribute to a Traditional IRA, but not everyone will get the benefit of a tax deduction.  Traditional IRA holders are eligible to withdraw from their IRA at the age of 59 ½, at this point the withdrawals are taxed as ordinary income.  You may incur penalties for early withdrawals.

A Roth IRA is a tax exempt retirement plan.  Contributions made to Roth IRA’S are not tax deductible when they are made.  Qualified distributions made during retirement years are tax free.

With Roth IRA’S a person that files their taxes as single can not earn more than $95,000.  If you are married, you are limited to annual maximum income level of $150,000.

The minimum withdrawal age is 59 ½.  When the money is withdrawn, none of the money is taxed.  The principal can be withdrawn at any time without penalty.  The earnings must remain in the Roth IRA or they will be subject to taxes and penalties if you make early withdrawals.

It is a good idea to investigate which type of IRA will be best for you, a Traditional IRA or a Roth IRA.

Hiring a financial advisor will give you expert advice and valuable resources in the best way for you to save for your future.

Financial experts can help you:

• Save time, avoid costly mistakes, manage risks, and help you improve your overall investment results.
• Guide you through all of your options:  IRA, Roth IRA, 401K, pensions, annuities, etc.  They can help get you on the right track to have the kind of retirement you have always dreamed about.
• Decrease your estate tax liability.  This will help give your loved ones financial stability.
• Reach your educational savings goals.
• Help you determine the type of insurance you need to protect yourself, your family, as well as your assets.
• They can help you minimize your taxes, file tax returns, and plan future action to reduce tax impact.
• If you own your own business, they can help you develop strategies to manage your finances, cash management, employee benefits, and corporate taxes.

You can take care of your own financial planning, but most of us are not experts on these matters.  To get the best advice, you need the help of a financial expert.  They are experienced in all types of investments, and their job is to help you get the most from your money.

Having a financial expert help you with your Roth IRA is a great way to make sure you get the support, guidance and reassurance to help you stay on course and reach your long term savings goals.

To get the best results from your Roth IRA, keep in mind that the success of your retirement investing depends on what industries are doing well at the time you invest in that particular business.  As an investor you should look at the big picture and only invest your funds in investments that will continue to perform well over a long period of time.

Real estate is a popular choice for many retirees as one of the best Roth IRA assets.  Real estate offers promising rates of return on your investment.  Although real estate success rates are high, there are Roth IRA limitations and restrictions on real estate dealings.  You should do careful research, like the indirect benefits, consequences of self dealing, and the type of transactions that are prohibited.

If you are interested in investing in conventional, yet safe assets, think about bonds and CD’S.  CD’S and bonds are covered by the Federal Government.  That is why the returns are pretty low.

The best Roth IRA investments can help you have enough money for retirement.  Make yourself familiar with the maximum value or profit that your account can produce over a specific period of time.  Another good thing about a Roth IRA retirement plan is, since your original contributions are already taxable, upon retirement you can make withdrawals and disbursements tax free.