Roth IRA - Available as of January 1998.
A Roth IRA is a retirement account whereby individuals for the tax year 2006 can put up to $4000 (non-deductible contribution) per year of earned income into the plan. While in the plan, asset growth, dividends and interest are not taxable, and monies withdrawn from the plan are TAX FREE under certain conditions.
Starting in 2002, a catch up Roth IRA contribution provision became available for individuals over fifty (50) years of age. For the year 2006, there is a $1000 catch up contribution allowed.
A Roth IRA account can be established by most individuals regardless of their age who have earned income below a certain specified threshold.
A Roth IRA account can be established by individuals who participate in various company, agency or not for profit retirement plans: SEP IRA,
Simple IRA, 401k Plan, 403b Plan, 457 Plan, etc.
A full $4000 per person NON DEDUCTIBLE Roth IRA contribution limit applies for each working couple if joint income is below $160,000 and below $110,000 for single filers.
Both a tax deductible Individual Retirement Account contribution and a non-deductible Roth IRA contribution are allowable, but the combined total contribution cannot exceed the Roth IRA limit of $4000 per year.
Both a husband and a wife can each have their own account.
Dividend, interest and capital gain growth within a Roth IRA account is not taxable and monies eventually removed from the account are tax free if the account is owned at least five (5) years and the owner is over 59 1/2 years of age.
Unlike a traditional Individual Retirement Account there is no minimum Roth IRA distribution or Roth IRA withdrawal requirements after age 70 1/2; hence, a Roth IRA account can be held as long as desired and it can be passed on to one's children or other heirs on an income tax free basis. Estate taxes, however, might apply (consult your tax advisor for details).
At any age, after the account is opened for at least five (5) years, one can take a lifetime maximum Roth IRA withdrawal of $10,000 (contributions and earnings) without paying taxes or penalties for a first time home purchase, which might or might not be for the account owner.
At any age, for any reason, one can take a Roth IRA distribution of the amount of funds contributed (not growth) without paying tax or penalties.
Various mutual funds, variable annuity, stocks, bonds, equity indexed annuities, fixed annuities, bank cds and other investment choices are available for funding these types of plans.
Variable Annuities have internal expense charges, administrative fees, and mortality expenses which should be fully reviewed before investing. Most Variable Annuities, (excluding NSC Variable Annuities) typically have declining surrender charges which will generally apply should the contract be totally surrendered over the first several years. Please see annuity company prospectus for more details. Investing in stocks, bonds, mutual funds and variable annuities does not guarantee a profit. All of these investments can lose money. All Mutual Funds, Variable Annuities and Variable Life Insurance policies are offered by prospectus ONLY. For complete information, including charges and expenses, obtain a prospectus, and read it carefully before you invest. Mutual Fund, Variable Annuity and Variable Life prospectuses are available directly from the issuing companies, is included when product information is requested, and in some cases, they can be downloaded directly from the issuing company's internet website. The tax deferral characteristic associated with variable annuities is not needed when used in an account that is by definition tax deferred (qualified retirement accounts) and, according to some sources, variable annuities generally have higher fees and internal expenses than mutual funds. Systematic and dollar cost averaging within Mutual Funds, Variable Annuities and Variable Life insurance policies does not assure a profit and does not protect against loss in declining markets. It involves continuous investment in securities regardless of fluctuating prices and the investor should consider his or her financial ability to continue purchases through periods of low price levels. Investing in stocks, bonds, mutual funds and variable annuities does not guarantee a profit. All of these investments can lose money. Stocks, bonds, mutual funds and variable annuities are not FDIC insured.
