A Roth IRA account is an Individual Retirement Arrangement allowed under the United States tax law and named for its legislative sponsor Senator William Roth, late of Delaware. The Roth IRA has existed since 1998. It is used as a retirement savings plan and Roth IRA rules were put in place to prevent abuse of the system.
According to Roth IRA rules, to be eligible to open a Roth IRA all one needs is taxable income. That income can be in the form of salaries, wages, bonuses, tips or professional fees. There are no Roth IRA rules that require a participant be a certain age to open an account. If a kid were really smart, he or she would establish a really good paper route as soon as they could and open a Roth IRA.
Roth IRA rules that certain income requirements be met in order to open and maintain an account. If your adjusted gross income exceeds the specified limits, you are not eligable to contribute to a Roth IRA. That is probably one of the main deciding factors when choosing between a Roth IRA and a Traditional IRA. Do you allow the income restriction to affect your earning potential? If earning potential is a concern you may be better off with a Traditional IRA. The income limits for 2010 are if you are single head of house you can make a full contribution up to $105,000. You can make a reduced contribution if your income is $105,000 to $120,000. If you are married and filing jointly you can make a full contribution up to $167,000 and a reduced contribution if your income is $167,000 to $177,000.
Roth IRA rules that the annual contribution limit for 2010 is $5,000 with a catch up limit of $1,000. A catch up is allowed in the year of your fiftieth birthday. The contribution can be paid anytime during the tax year. Some Roth providers require payments at regular intervals and may also require a minimum payment each time a payment is made.
Roth IRA rules that contributions can be invested in a number of ways including stocks, bonds, mutual funds and certificate of deposits.
Another of the Roth IRA rules requires contributions come from taxed dollars rather than pre tax dollars. The benefit to that is upon withdrawal of funds, no other taxes will be imposed. For the duration of your investment, you already taxed dollars will be generating interest and investment value, maximizing your retirement funds available for future use.
Roth IRA rules specify an account must be open for a minimum of five years before withdrawals can be made. Since the money has already been taxed, the withdrawals are essentially tax free. The other qualifying distribution factor is distributions are made on or after the date you turn 59 ½, a distribution is made to your beneficiary after your death, if you become disabled distributions attribute to your disability and you are a first time home buyer. Any other distribution is against Roth IRA rules and subject to early withdrawal penalties.