Roth IRA Rules
Roth IRA was started as an alternative retirement savings scheme to the traditional IRAs. Enacted in the year 1997, Roth IRAs are slightly different to traditional IRAs. Roth IRAs are funded with money on which income tax is already paid unlike traditional IRAs which are pre tax investments. So, when you are making a contribution to your account there are no tax deductions. Neither, do you have to pay any tax when you withdraw the funds post retirement. Further, you do not have to pay any tax on your earnings while it is in the account unlike traditional IRAs where you pay tax on your earnings as well. Another advantage is that there are no distribution requirements as long as you are alive.
There are certain Roth IRA rules. Let us understand them in brief. The first rule relates to the eligibility criteria. How much you can contribute into your Roth IRA depends upon your tax filings and keeps varying every year. For the year 2009 and 2010, the Roth IRA rules say that you can make a full contribution if your gross annual income after adjustments is less than $105000. Likewise, if your annual gross income after adjustments is between $105000 and $120000, you can make partial contributions into your Roth IRA.
Investing in a Roth IRA is very flexible. You can choose how you invest your Roth IRA funds. You can opt for investments in bonds, mutual funds, stocks, real estate, certificate of deposits, etc. There are many financial institutions which offer these investment products. If you are investing in mutual funds, then you may have to pay a certain percentage of your money towards management fees.
Likewise, if you are confident of taking care of the investments on your own, you also have that flexibility. You can open a self managed investment account with any of the leading financial institutions and manage your investment funds. This will give you a complete grip on your investments.
