Wednesday, January 10, 2018


If you are able to make contributions to a ROTH IRA you should use a ROTH IRA account as your current savings account.

Contributions to a ROTH IRA are never deductible on your federal or state income tax returns.  But earnings on money held in a ROTH IRA account can eventually be totally tax free to both you and your beneficiaries.

Here is what you need to know about a ROTH IRA -

* The maximum amount you can contribute to a ROTH IRA, a traditional IRA or a combination of ROTH and IRA accounts for 2018 is $5,500.   If you are age 50 or older you can contribute an additional $1,000.

* You can contribute to a Roth IRA at any age as long as you have earned income from a job or from self-employment.   You do not have to stop making contributions at age 70½ if you still have earned income.

* The amount of your allowable contribution to a ROTH IRA is phased out and eventually eliminated based on your Adjusted Gross Income (AGI).  The AGI phase-out range for taxpayers making contributions to a ROTH IRA for 2018 is -

$120,000 - $135,000 = Single and Head of Household
$189,000 - $199,000 = Married Filing Joint and Qualifying Widow(er)
$0 - $10,000 = Married Filing Separate

* You can withdraw your contributions at any time without taxes or penalty.  All withdrawals are considered to come from contributions first

* You must hold the Roth account for at least five years and be at least 59½ before you can withdraw earnings tax-free and penalty-free.  The 5-year period begins on the first day you make your first ROTH contribution.

* You never have to take any withdrawals from a ROTH IRA in your lifetime.  There are no annual required minimum distributions beginning at age 70½.

As long as you never touch the accumulated earnings on your ROTH IRA investment, and withdraw only your contributions, you can take money from this account at any time over the years without any tax cost.  And your accumulated earnings will grow to a nice retirement nest egg, or legacy for your beneficiaries, if invested wisely.

You have contributed $10,000 to a ROTH IRA over the past couple of years, which has accumulated earnings of $2,000.  You need $5,000, or as much as $10,000, to pay for an extraordinary medical bill, or for needed home repairs, or to pay for your child’s college education.  You can take the $5,000 - $10,000 from your ROTH IRA account without any tax consequences.

Here is another good idea – If your son or daughter has a summer job you should consider opening up a Roth IRA account for him or her.

To qualify for an IRA your child must have earned income — wages or net earnings from self-employment.  Money you give your child for doing chores around the house doesn’t count, but earnings from babysitting or mowing lawns may qualify.

You can contribute 100% of your child’s earnings to the account, up to the $5,500 maximum. If your son earns $2,400 for the summer you can contribute $2,400 to a Roth IRA for him. If he earns $6,500 you can contribute $5,500.

There is nothing in the tax code that says that the money deposited in an IRA for your son or daughter has to come from the child’s funds.  You can use your own money to fund the IRA contribution and let your child keep his earnings.

You can use a Roth IRA to encourage your children to work or to save. If your son earns $5,000 in a part-time job, open a Roth IRA for him.  Or, if your daughter agrees to put $2,500 of her salary from a summer job in a Roth, match it and put in another $2,500.

If you put the maximum into a Roth each year for your 16-year-old from 2018 through 2023, when he/she will turn 21, and no other contributions are ever made, the account could grow to a truly tidy sum (in 6 figures) by the time the child turns 65.

One caveat - there exists a potential problem with opening a Roth account for a child. Once the child reaches the “age of majority,” usually 18, he/she will have full access to all the funds and can “take the money and run.”

One last thing - the earlier in the year you contribute to your, or your children's, ROTH IRA, the more money you will accumulate tax-free at retirement.  So make your 2017 (if not already done) and 2018 ROTH IRA contribution today.


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