Archive for the ‘Roth IRA’ Category:
Setting up a Self-Directed Roth IRA in 2010
For those looking to take control of their own investments while avoiding future taxes, now may be the time to set up a self-directed roth ira. The stock market is beginning to look more attractive (still more than 30% off it’s summer of ’07 levels) and new roth ira owners are still able to withdrawal their money tax free upon retirement. Regardless of whether or not you are comfortable making your own investment decisions, you should still set up an IRA (traditional or roth). The roth comes with more tax benefits, however, you may be ineligible to begin one of these accounts if you earn to much money.
Setting up a new IRA? Get an $800 bonus from E-Trade!
Self-Directed Roth IRA quick facts:
- requires the account owner to make investment decisions and investments on behalf of the retirement plan
- Self-directed IRA accounts are generally not limited to a select group of asset types (stocks, bonds, mutual funds, etc)
- brokers permit their clients to engage in most or all investments
- possible investment options include, but are not limited to, real estate, mortgages, stocks, bank CDs, bonds, franchises, partnerships, etc.
By allowing the self-directed roth ira owner to not only control his/her own investment decisions but also allow such a wide range of investment choices, the owner can benefit from the diversity of their investments as well as their own independent research.
Contribution Limits and rule adjustments for 2010:
- $5,000 (or $6,000 for those age 50 and above)
- the $100,000 modified AGI limit for conversions to Roth IRAs has been eliminated this year (which means that married couples filing separate returns can now convert amounts to a Roth IRA)
Opening a Roth IRA account? Check out E-Trade’s current offer.
A few months back we covered the exceptional deal coming from E-Trade and thought we’d give it another shout out for those of you whom are considering opening a new IRA (Individual Retirement Account).
Currently the deal is this, if you open your new IRA or Roth IRA with E-Trade they will grant you 100 free trades. Considering the fact that E-Trade and other brokerage accounts generally charge between $8-$20 per trade, makes this one very noteworthy offer. Essentially E-Trade is giving away (throughout the life of your Roth IRA) $800 for conducting business with them. Not too shabby…
Here are E-Trade’s Roth IRA account details:
- No minimums and no account fees when you sign up for online statements and confirms
- Contribute up to $5,000 or 100% of compensation, whichever is less. If you are over 50, you can contribute an additional $1,000 of compensation
- Flexibility to withdraw original contributions tax-and penalty-free at any time, for any reason
- Withdraw earnings tax-and penalty-free at age 59½ provided account has been open at least five years
- Withdraw earnings after five years for home purchase, college, or major medical expenses penalty-free
- No age limit on when you have to withdraw money
Great checking rates and IRA rates found at Virginia bank
EVB (East Virginia Bank) currently serves the greater Virginia area with 25 banking locations. What sets this bank apart from the rest are its current IRA rates and checking account rates, which demolish the national average. Their two advertised bank rates are highlighted below. Keep in mind, if you live outside the greater Virginia area and/or don’t have family members residing in that area, then you probably wont be able to take advantage of their financial products.
Reward IRA Savings Account
EVB (East Virginia Bank) offers, sort of a hybrid banking product, called the “Reward IRA Savings Account” it functions as a high yield savings account WITHIN an IRA account. Therefor you can enjoy the high FDIC insured rates of a high yield savings account while simultaneously benefiting from the tax breaks provided with a tradtional IRA account. The current rate on this savings account is 3.05% APY (national average sits at 1.95% APY). One thing to note with this savings product is that the rate is a variable one and is subject to change once the account is open.
Reward Checking Account
Much like the other rewards checking accounts and interest checking accounts in which BankVibe has covered, this account comes with monthly requirements. These requirements are 10 monthly debit transactions, 1 automatic ACH transfer payment, and receive monthly E-Statements.
What is unique about this account is that you can earn 3.01% APY on all balances up to $100,000. Most of these accounts only provide a premium interest rate on balances up to $25k, making this offer more advantageous to people with larger chunks of idle cash. This account, like the IRA savings account, is FDIC insured up to $250k.
To learn more about these rates or to inquire about membership eligibilty click here.
E-Trade’s IRA bonus – $800 worth of Free Trades!
A few weeks ago BankVibe noted a fantastic IRA bonus from E-Trade. Currently they are offering new customers an IRA (individual retirement account) with 100 free trades! E-trade typically charges $7.99 per trade, thus making this offer worth up to $800!
If you have been looking into opening an IRA account, than this is probably your most lucrative offer if you don’t receive matching programs through your place of employment. With the US markets seemingly in the midst of a slight rebound, these 100 free trades may come in handy!
Requirements for E-trade IRA bonus:
- You must maintain a minimum balance of $25,000 (since this is an IRA account, you may wish to rollover your current IRA into the E-Trade IRA account if you cannot meet the minimum balance)
- Offer available with NEW E-Trade IRA accounts only
- Offer available for Roth IRA, traditional IRA, and IRA rollover
- Account must be opened by December 31, 2009
IRA
An IRA (individual retirement account) is a retirement account that provides tax advantages for retirement savings.
There are a number of different types of IRAs, which may be either employer-provided or self-provided plans. The types include:
Roth IRA: With a Roth IRA one can invest in securities, usually common stock or mutual funds (although other investments, including derivatives, notes, CD’s (certificate of deposits), and even real estate). As with all IRAs, there are specific eligibility and filing status requirements mandated by the IRS.
Roth IRA primary advantage – You make “after-tax” contributions in exchange for “tax-free” withdraws.
Learn more about the Roth IRA
Traditional IRA: The traditional IRA is held at a custodian institution such as a bank or brokerage, and may be invested in anything that the custodian allows (for instance, a bank may allow cd’s (certificate of deposits), and a brokerage may allow stocks and mutual funds). Unlike the Roth IRA, the only criterion for being eligible to contribute to a Traditional IRA is sufficient income to make the contribution. However, the best provision of a Traditional IRA — the tax-deductibility of contributions — has strict eligibility requirements based on income, filing status, and availability of other retirement plans (mandated by the IRS). Transactions in the account, including interest, dividends, and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, withdrawals are subject to capital gains tax. This is in contrast to aRoth IRA , in which contributions are never tax-deductible, but qualified withdrawals are tax free. The traditional IRA also has more restrictions on withdrawals than aRoth IRA . With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability.
SEP IRA: The SEP IRA is a retirement plan designed to benefit self employed individuals and small business owners. Sole proprietorships, S and C corporations, partnerships and LLCs qualify. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. There are no significant administration costs for self-employed person with no employees. If the self-employed person does have employees, all employees must receive the same benefits under an SEP plan. Since SEP accounts are treated as IRAs, funds can be invested the same way as any other IRA.
Simple IRA: A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.
Self Directed IRA: requires the account owner make investment decisions and on behalf of the retirement account. IRS regulations require that either a qualified trustee, or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account. Self-directed IRA accounts are typically not limited to a select group of asset types (e.g., stocks, bonds, and mutual funds), and most truly self-directed IRA custodians will permit their clients to engage in investments in most, if not all, of the IRS permitted investment types (an almost unlimited array of possibilities including foreign real estate). Some of the additional investment options permitted under the regulations include, but are not limited to, real estate, stocks, mortgages, franchises, partnerships, private equity and tax liens. Self-directed IRAs, by allowing a wide range of investment choices, improve the account owner’s opportunities to diversify their IRA portfolio(s).
You may also be interested in:
100 Free Trades with New IRA Account from E-Trade!
Currently E-Trade is running a pretty sweet promotion in which they will give you 100 free trades when you open any form of IRA account.
Considering the fact that they typically charge $7.99 per trade, this adds up to almost an $800 value!
Offer available for limited time.
E-Trade IRA Account promotion details
- You must maintain a minimum balance of $25,000 (since this is an IRA account, you may wish to rollover your current IRA into the E-Trade IRA account if you cannot meet the minimum balance)
- Offer available with NEW E-Trade IRA accounts only
- Offer available for Roth IRA, traditional IRA, and IRA rollover
- Account must be opened by December 31, 2009
The Death of the ROTH IRA
I’ve come across much concern regarding tax free retirement accounts (ie. Roth IRA) and how they will be affected by a new administration and a new domestic fiscal policy. Many people claim that the dem’s are not particularly fond of the Roth IRA and some even insist that it will be eliminated before the end of ’09.
www.RothIRA.com claims that, “Major income tax changes are highly likely in 2009. Since Roth IRAs have never been popular with Democrat party politicians, 2008 may be your last chance to set up a Roth IRA and to reap its benefits with tax-free growth.”
They go on to state that, “On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 into law. This tax bill included a provision dealing with conversions of traditional IRAs to Roth IRAs. Starting in 2010, the existing $100,000 income test for converting a traditional IRA to a Roth IRA will no longer apply. Conversions that occur in 2010 will be able to have half of the taxable converted amount taxed in 2011 and the other half taxed in 2012.”
I personally believe the Roth IRA has flourished under the last 8 years (at least contributions to it by employed citizens) I also believe that it is too functional of an investment vehicle for it to be eliminated by the new administration. After all, isn’t the Roth IRA’s number one investor the middle-class worker?
What say you?
Roth IRA FAQ’s
I created this Roth IRA FAQ page in an attempt to eliminate the incoming questions regarding the Roth IRA, since most were extremely similar in nature.
Here goes…
1) If I convert my IRA to a Roth IRA, will that income increase my adjusted gross income for the current year?
Yes. The income you have to report for an IRA conversion to a Roth IRA will have an impact on all AGI tax issues (except for any direct Roth contribution and/or conversion issues). So if you meet the AGI limitation rules to convert or contribute to a Roth IRA before taking the conversion income into consideration, this income won’t make you ineligible based on an increased AGI. Keep in mind that other AGI taxes will apply.
2) Can someone who is 15 years old make Roth IRA contributions?
If you are employed then typically, yes. You must have earned income (outside of allowance through parents!) with which to open the Roth IRA account, and as long as you fall under the income limitations (see Roth IRA Limits), then you can make IRA contributions at any age. Just remember you must be earning income through an employer to fund this Roth IRA account.
3) Can someone over the age of 70 convert a traditional IRA to a Roth IRA?
For the most part, yes. If this someone earns less than the $100,000 limitation, then they are eligible for the conversion. Any required minimum IRA distributions that this person must take from a traditional IRA will not count against the $100,000 limitation. Keep in mind this income limit refers to Adjusted Gross Income (AGI).
4) If I convert my traditional IRA to a Roth IRA, do I have to pay the taxes all at once?
Yes. You must report all of the conversion income in the same year that the IRA conversion took place.
5) If I have already converted an IRA to a Roth IRA and I suddenly expect my AGI (adjusted gross income) to exceed $100k what can I do to avoid any sort of penalties?
You may change the name of your converted Roth IRA back to a traditional IRA without any penalty or tax. However, you must make this IRA conversion before Oct. 15 of the following year! The sooner you make this IRA conversion the better. I wouldn’t suggest putting it off.
In a nut shell, you shouldn’t be worried about exceeding the Roth IRA contribution’s income limit. Get your broker on the phone and have him/her walk through the IRA conversion with you.
6) If someone is already retired and receiving an income via Social Security can they contribute a portion of this to a Roth IRA account?
No. Again, to make any Roth IRA contribution, you must have income through an employer. This income is reported to you on a W-2 form, or you report it on Schedule C (Business Income) or Schedule F (Farm Income) with your normal tax return. The term “earned income” implies wages in exchange for labor, therefore- social security, pension funds, trust funds, social security, etc. do not apply.
7) I will require income almost as soon as I retire. Can I begin taking money from my Roth IRA without paying any taxes or penalties if I retire before 52?
Possibly. Under IRS rules, you are allowed to remove your original contributions without penalty and if you have had this Roth IRA for at least 5 years you will be able to withdraw your original converted amount without penalty as well. However, you still will potentially pay taxes and/or penalties on the earnings that were generated by the original contributions and conversions you made to your Roth IRA. You will most likely be able to avoid a penalty but it is highly unlikely that you will avoid any taxes on your IRA contribution earnings.
If you remove the funds from your Roth IRA account using a distribution method that is part of a scheduled series of substantially equal periodic payments made over your life expectancy (and the life expectancy of your beneficiary), you may still be penalty-free.
8) I owe a lot of money in taxes this April because I converted to a Roth IRA. Is it possible to avoid penalties for underpayment?
No. You will not be excused from the underpayment penalty just because the amount you owe was caused by a Roth IRA conversion.
*As always you should consult with a certified tax professional before maneuvering any investment funds.
Roth IRA – The gift that keeps on giving!
I know recieving a new Roth IRA account as a gift may be a tad boring…atleast when compared to say, a new iphone, but look at it this way – basically you are recieving an IOU for a new car/piece of property/house, etc when you turn 59.5! Does that make it more exciting?
Indeed a Roth IRA is a gift that will keep on giving but it has it’s limitations on who can receive it. The Roth IRA is a good option for young people who are just entering the work force.
A Roth IRA may be preferable gift to a traditional IRA because withdrawals of contributions (not earnings) are generally tax and penalty free. However, traditional IRAs could benefit people in certain income brackets since contributions may be tax deductible.
As with brokerage accounts, you’ll need personal information for the beneficiary if you’re opening a custodial account. Beneficiaries also need to earn a paycheck to be eligible.
Advantages of a Roth IRA (provided by wikipedia)
- All contributions and earnings held in a Roth IRA may be withdrawn tax free after the “seasoning” period and age 59½. Dividend and interest earnings within a traditional IRA are taxed as ordinary income even if the monies were invested in stocks or mutual funds, and a penalty applies for withdrawals before age 59½. In contrast, stocks or mutual funds held in a regular taxable account for at least a year would be taxed at the lower long-term capital gain rate, currently only 15%. This higher tax rate for withdrawals from a traditional IRA is a quid pro quo for the deduction taken against ordinary income when putting money into the IRA.
- If there is money in the Roth IRA due to conversion from a traditional IRA, the Roth IRA owner may withdraw up to the total of the converted amount, as long as the “seasoning” period (currently five years) has passed on the converted funds.
- Direct contributions to a Roth IRA (i.e., not including rollovers) may be withdrawn at any time with no tax or penalty, since they have already been taxed.
- Up to $10,000 in earnings withdrawals are considered qualified (tax-free) if the money is used to acquire a principal residence. This house must be acquired by the Roth IRA owner, their spouse, or their lineal ancestors and descendants. The owner or qualified relative who receives such a distribution must not have owned a home in the previous 24 months.
- Contributions may be made to a Roth IRA even if the owner participates in a qualified retirement plan such as a 401(k). (Contributions may be made to a traditional IRA in this circumstance, but they may not be tax deductible.)
- If a Roth IRA owner dies, and his/her spouse becomes the sole beneficiary of that Roth IRA while also owning a separate Roth IRA, the spouse is permitted to combine the two Roth IRAs into a single account without penalty.
- If the Roth IRA owner expects that the tax rate applicable to withdrawals from a traditional IRA in retirement will be higher than the tax rate applicable to the funds earned to make the Roth IRA contributions before retirement, then there may be a tax advantage to making contributions to a Roth IRA over a traditional IRA or similar vehicle while working. There is no current tax deduction, but money going into the Roth IRA is taxed at the taxpayer’s current marginal tax rate, and will not be taxed at the expected higher future effective tax rate when it comes out of the Roth IRA.
- The Roth IRA does not require distributions based on age. All other tax-deferred retirement plans, including the related Roth IRA 401k require withdrawals to begin by April 1 of the calendar year after the owner reaches age 70½, If you don’t need the money and want to leave it to your heirs, this is a great way to accumulate income tax free. Beneficiaries who inherited Roth IRAs are subject to the minimum distribution rules.
- Since a Roth contribution has already been taxed, it may be equivalent to a larger contribution to a traditional IRA that will be taxed upon withdrawal. For example, a contribution of the 2008 limit of $5,000 to a Roth IRA may be equivalent to a traditional IRA contribution of $6667 (assuming a 25% tax bracket at both contribution and withdrawal). In 2008 you cannot contribute $6667 to a traditional IRA due to the contribution limit, so the post-tax Roth contribution may be larger. However, many people end up in a lower tax bracket in retirement, or, the effective tax rate applicable to their traditional IRA withdrawals in retirement will be equal to or lower than their marginal tax rate while working, and they will not realize this benefit.
How to Open a Roth IRA Account
If you are reading this article then it is likely that you have chosen or are considering opening a Roth IRA. As you may be aware, the Roth IRA is arguably one of the best investment vehicles for your retirement. The Roth IRA is a different, and advantageous, investment vehicle due to it’s unique taxing structure. Here are the 4 most important and unique advantages to the Roth IRA:
- Withdraws from Roth IRA’s after age 59.5 are not taxed because you pay your taxes before hand by contributing after tax dollars.
- Typically, most people increase their total income over time as they get older. Thus, they usually either stay in the same marginal tax bracket or end up at a higher bracket level at retirement. This is why Roth IRAs enable savvy savers at retirement to accumulate more money than even tax-deductible IRA’s.
- Unlike a traditional IRA, not everyone is eligible to open and contribute to a Roth IRA. For 2008, the Roth contribution limit is $5,000 as long as your income falls below $101,000 if you’re single, and $159,000 if you’re married filing a joint tax return.
- Also, unlike a traditional IRA, with a Roth you can withdraw your original contribution money at any time for any emergency reason, tax free, and without penalty and you don’t have to replace the funds, unlike a 401K or a traditional IRA. Of course, it’s always best not to withdraw because that stops the compound interest process.
Finding The Best Broker To Open a ROTH IRA Account:
Increasingly more and more young investors choose to start their retirement savings with a Roth IRA. You can open this Roth IRA either with a bank or a broker of your choice. Most banks offer retirement accounts to their customers but their choice of investment vehicles such as CD’s (certificate of deposits), money market accounts, and other savings accounts can be limited with low rates of return. Here are some basic criteria you can take into consideration when deciding which broker to open your Roth IRA account with:
- Choice Of Investment Options (stocks, bonds, mutual funds, etc) – A Roth account is merely the account type. Within this Roth IRA account you can invest any way you’d like (stocks, bonds even real estate).
- Low Commission Costs and Account Fees – Depending on market conditions you may want to start wit conservative investments such as index funds or mutual funds. Just be sure to make sure the fee’s are minimal or at least reasonable.
- Automatic Contribution – If you’re planning to invest on a month to month basis look for a retirement broker that offers the ability to make automated fund transfers into your Roth from your personal bank account.
- Minimum Balance Requirement – Some brokers may impose a minimum initial investment and balance requirement. For young investors or new investors the minimum requirement may difficult to acquire if the limit is to high. Don’t get discouraged by limits if you only want to start up with a few hundred dollars, there are options available.
- learn more about: Roth ira’s
