A Roth IRA is a retirement account in which contributions are not tax deductible, meaning you pay any taxes upfront on money invested. When you reach the age of retirement, distributions are not taxed. This is different from most other retirement accounts, such as the Traditional IRA, where your contribution is made pre-tax and individuals only pay taxes when a distribution is taken. It’s vital to consider what tax bracket you may be in during retirement. Typically, individuals who expect to be in a higher tax bracket during retirement choose to have a Roth IRA.
Roth IRA Eligibility Requirements
There are certain income rules for a Roth IRA. As of this writing, in order to make full contributions an individual who files single may earn up to $114,000. People who file jointly may earn up to $181,000. If you earn more than this in a year there are certain ranges in which you may still make partial contributions. You may read more about specific contribution amounts at IRS.gov.
Roth IRA Contributions
There are imposed contributions limits for a Roth IRA. As of tax year 2012 an individual may not contribute more than $5,500 annually. If over the age of 50 you may make smaller “catch-up” contributions as well. In most cases, all contributions cannot surpass your earned income for the tax year in question.
Roth IRA Distributions
Typically distributions taken from a Roth IRA are not taxed. This is because the money that originally went into this account was already taxed. To clarify, it matters if distributions taken from a Roth IRA are qualified or non-qualified. In most cases, a qualified distribution means the Roth IRA holder is at least 59 ½ and has been contributing to the account for at least five years (known as the “Five Year Rule”). Distributions may also become qualified if they are used for a first-time home purchase, or if the Roth IRA holder becomes disabled. Non-qualified distributions are typically subject to a 10% early distribution penalty. Furthermore, interest earned is also subject to tax. After five years of owning the account, distributions Please consult the IRS to determine exactly how distributions may be subject to taxation.
Another unique attribute of a Roth IRA is that is has no Required Minimum Distributions. In a Traditional IRA you must take annual Required Minimum Distributions at the age of 70 ½. You are not required to do this with a Roth IRA. This is beneficial for individuals who do not need the retirement income and would prefer to have that money continue to grow in their retirement account.
Adding Gold and Silver to a Roth IRA
If you are curious about your options for converting your Roth IRA to precious metals, call us today. American Bullion specializes in assisting investors who wish to own physical precious metals in their IRA. To learn more, call American Bullion at 1-800-326-9598 to speak with a precious metals specialist.