2010 Roth IRA Contribution Limits
A Roth IRA is the reverse of the traditional IRA, though limits on the amounts you’re allowed to contribute are identical. Unlike with a traditional IRA, you can’t deduct your contribution on your income taxes. However, your money in a Roth IRA grows income tax free and you can withdraw from it income tax free, which for many people can prove an even better deal. To withdraw tax free, you must have this investment at least five years and be at least 59 1/2 years old. Fail to meet these conditions, and you’ll owe income pension taxes on the amount withdrawn.
Among the exceptions to this rule is if you’re withdrawing for first-time homebuyer expenses. Unlike with the traditional IRA, you don’t have to make minimum retirement money withdrawals from a Roth IRA at age 70 1/2 . Have more than $110,000 in annual income, $160,000 for a married couple? In that case, at least in 2006, you probably can’t contribute to a Roth IRA.
There are other types of retirement accounts for small businesses. Among those: a simplified employee pension SEP IRA, which is a type of traditional IRA but for small businesses, and a Savings Incentive Match Plan for Employees (SIMPLE). A SIMPLE plan is for employers with up to 100 employees who received at least $5,000 in compensation during the prior year.
Visit www.irs.gov and check out Publication 590, “Individual Retirement Arrangements (IRAs),” for more information on retirement plans. Uncertain whether you should invest in an IRA or a Roth IRA? Experts usually advise investing in the Roth IRA if you expect to be in a high tax bracket when you retire. Calculators at www.cch.com can help you figure out which to choose.
2010 Combined Traditional and Roth IRA Contribution Limits
If you are under 50 years by the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
If you are 50 years older before 2011: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.
Starting in 2006, employers may let you designate some or all of your 401k contributions as Roth 401(k)s. Unlike with the typical 401k retirement plan, you get no upfront tax break through a salary reduction. But you would be able to withdraw your money income tax free provided you’re at least 59 1/2 years old and have had the Roth-designated investments at least five years.
Leaving a job or want to change the financial institution that holds your retirement account? You can choose to have your plan transferred. Take possession of the proceeds, though, and you have 60 days to roll them over into another plan. Fail to meet that deadline, and you’ll be forced to have 20% withheld for income taxes. Plus, you’ll have to pay taxes on your retirement investments.