Author Box
Articles Categories
All Categories
Articles Resources

IRAs, Roth IRAs And Your Financial Freedom

April 13, 2012 | Comments: 0 | Views: 136

Have you been thinking about investing inside an I.R.A. or a Roth I.R.A.? Do you know which one is better for your financial freedom? Regardless of which one you choose, you should at least know this much: pick one, start saving early and keep adding every year if you can. You will see very shortly that a Roth I.R.A. makes more sense for most people. The name Roth comes from the name of the senator that introduced this tax advantaged saving vehicle. In a traditional I.R.A. your contributions are tax deductible. Your money will grow tax deferred until you must make mandatory withdrawals by age 70 & 1/2. You can contribute up to $5,000.00 per year unless you are 50 or older in which case you would be allowed to contribute up to $6,000.00 per year. The government allows this greater contribution limit as a "catch up" in case you have not been saving as much as you should have saved throughout the years. If you can contribute the extra $1,000.00 per year than by all means do so starting at age 50. The more you put away, the sooner you will achieve financial freedom!

Early withdrawals from your I.R.A. before age 59 & 1/2 will incur a 10% penalty. Once you start to withdraw from your I.R.A., you will pay taxes at your current tax rate. Most people will retire into a lower tax bracket. Therefore when your withdrawals start, the tax that will be due will be lower than what you would have paid on the same amount of money earned during your working years. This is due to your new lower tax bracket status during retirement. The 2012 income limits that control if you can contribute are as follows: single filers, heads of households or married couples filing separately can earn up to $58,000.00 to receive a full deduction.The deduction will decrease as you approach the $68,000.00 upper limit. After you exceed this upper limit, you will not be entitled to a deduction on your income. If you are married and file jointly, those limits are $92,000.00 up to $112,000.00.

The Roth I.R.A. has some remarkable differences over a traditional I.R.A. You can withdraw principle at any time with no penalty because the contributions are not tax deductible when you first deposit them. There is no mandatory withdrawal age with a Roth I.R.A. When you do start to take distributions, they are tax free if you follow the rules. The big negative is that there are income limits as to how much you can earn in order to open and contribute to a Roth I.R.A. Single tax filers can earn up to $110,000.00 for a full contribution which fades out at the upper limit of $125,000.00. Married couples are limited to $173,000.00 for a full contribution and this fades out at the upper limit of $183,000.00. These limits are for 2012 and do change over time so be sure to check every year. Your financial freedom is dependent upon it!

Finally, you can even convert from an I.R.A. over to a Roth I.R.A. or the reverse. These re-classifications as they are called have their own rules and limits. The key to conversion is your ability to pay the taxes that will be due from sources outside your I.R.A. If this is something that you want to investigate, then by all means do check with your accountant. As stated earlier, which ever retirement investment vehicle you choose, I.R.A. or Roth I.R.A., start early and contribute often based upon your income and limits. Your financial freedom will thank you for it!

Chris Borg is a practicing pharmacist and financial adviser who writes about health care and investing. Chris's latest website on financial freedom is at RatraceBgone, where Chris provides financial tips such as the 9 steps to financial freedom: 9 Steps To Financial Freedom

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Financial Freedom




Roth I R A

The 3 Month Payday Loans is most suitable options for the people who do not possess assets. There are a variety of loan options for the people who are willing to pledge assets against the cash

By: Cameron white l Finance > Personal Finance l July 09, 2013 lViews: 560

For many people, bankruptcy can make their world fall apart. The apparent loss of reputation coupled with the inability to take financial decisions can deter anyone from thinking clearly. But all is

By: noragwilt l Finance > Bankruptcy Lawyers l November 18, 2012 lViews: 303

If you are availing payday loans with monthly payments, it is easy for you to obtain quick money from online lending companies.By getting the best deals of loan, you can save money in terms of

By: Malen Cheks l Finance > Loans l November 16, 2012 lViews: 288

Loans online have become the popular source of income and people can make smart decision of taking it.Now, don’t go anywhere and sit in your home silently. Such deals would bring you money without

By: Marsh Jone l Finance > Loans l November 13, 2012 lViews: 288

Loans for the unemployed would let you feel comfortable with your unstable conditions due to jobless period.If you compare the rates of a few lenders, you would definitely get the suitable lender to

By: kelse roy l Finance > Loans l November 13, 2012 lViews: 467

By taking cash advance for bad credit, it is easy for you to improve your credit status. This loan is useful to relieve financial stress. This loan is totally free from credit verification and

By: Honard Nork l Finance > Loans l November 09, 2012 lViews: 300

Don't listen to the hype, Tax liens are NOT a way to get property for pennies on the dollar - almost all good tax lien certificates redeem. But tax lien investing is the best way I know of to invest

By: Joanne Musal Finance > Wealth Buildingl April 26, 2012 lViews: 165

The need to seek professional help for managing finances has always been around as far as financial planning is concerned. The main reason for this change is the rising interest of people and

By: Clive Keramin Sobergl Finance > Wealth Buildingl April 26, 2012 lViews: 153

A couple key points to ponder if you are considering how to trade in penny stocks. It is always wise to do some research on this subject before you dive right in with your own money at risk!

By: Lee E Starksl Finance > Wealth Buildingl April 25, 2012 lViews: 160

Financial freedom isn't hard to achieve. It doesn't require any more hard work than is required to struggle from paycheck to paycheck. It doesn't require you to be any smarter than you are now when

By: Frederick W. James MDl Finance > Wealth Buildingl April 24, 2012 lViews: 184

Anyone can make money online. It is important to be savvy about your time spent online and your security on the net. If you wish to make $50,000 per year, then per work-hour, your time is roughly $17

By: N. Kamell Finance > Wealth Buildingl April 20, 2012 lViews: 161

Saving your money is a great way to store up cash for future needs. However, if you are looking to set up a nice retirement fund for your golden years, your savings will probably not be enough. In

By: James U Hammondl Finance > Wealth Buildingl April 19, 2012 lViews: 162

Everyone knows why they should have life, auto and homeowners insurance. You should also consider some of these lesser known, but just as important insurance products.

By: Chris Borgl Insurance > Disabilityl May 03, 2012 lViews: 121

Insurance planning is closely intertwined with your financial freedom. Proper coverage with all aspects of your life and possessions is very important if you want to sleep well at night.

By: Chris Borgl Insurance > Life Annuitiesl April 22, 2012 lViews: 145

With tax season upon us, it is never too late to start preparing for the next time you have to file your taxes. Proper tax planning will go a long way to securing your financial freedom if you can

By: Chris Borgl Finance > Taxesl April 19, 2012 lViews: 158

Everyone knows that you need to invest in the stock market if you expect to grow a nest egg for your financial freedom. But many people shudder at the thought of buying bonds. Come and learn why

By: Chris Borgl Investing > Retirement Planningl April 18, 2012 lViews: 113

Many companies offer to match an employee's contribution into their 401(k) plan. If this is available to you, you must take advantage of it as it is "free" money. Don't delay, start today!

By: Chris Borgl Investing > IRA 401kl April 17, 2012 lViews: 177

Manic depressive treatment options have been much improved from years gone by. Today's choices include cognitive behavior therapy, group therapy and several other new modalities in addition to the

By: Chris Borgl Health & Fitness > Depressionl April 12, 2012 lViews: 155

Discuss this Article

comments powered by Disqus