Learn about Roth IRA

Learn about Roth IRA Audra Lowe: We flip through the channels and come across the finance show. Do you start to get a little dizzy trying to follow what all the financial analysts are saying? Well, we all know that it is a good idea to put money away but all the dependents out there can make it a little confusing for us to know exactly what options are available. So in today’s Your Money Maribel Aber, Better's financing career expert recently sat down with me to demystify all the jargon, and also talk to us about the basics of the Roth IRA. Hi Maribel, welcome back! Maribel Aber: Hi! Audra Lowe: It is so easy to get confused with all the different investment tools, investment options out there. You know we are all familiar with the triads and through saying this account but not so much we turn on your investment there. What else is out there though in terms of options for people? Maribel Aber: You know you are right but we will start right there because people often think that we should save but though it happens that I even set up to save into account. Audra Lowe: Yeah. Maribel Aber: I mean I have got like some really savvy people, lots of friends who make lots of money. They are doing well but they do not know what the different options are so I think, I say, “Look we know how to spend it, right?” Audra Lowe: Exactly. Maribel Aber: And we know we should save it. Audra Lowe: Yeah. Maribel Aber: But it is not as intuitive for us, just figure out how to grow it. Audra Lowe: Exactly. Maribel Aber: So their investment goes out there. The one I’m going to talk about today is the Roth IRA. Audra Lowe: Okay, so let us talk about that, in a particular what is it? Why is such a great investment tool? Maribel Aber: What is the great investment tool first of course is back up, what is an IRA? Okay, it is an individual retirement account. A lot of times acronyms makes things a little bit more scary and it is as simple as that. There are two kinds. There is something called the traditional IRA and the Roth IRA and I am going to talk specifically about the Roth, okay? Audra Lowe: Uh-hum. Maribel Aber: So the three benefits that I want to talk about, first thing is that for the Roth IRA it is all after tax dollars so unlike the traditional IRA which is like the 401K where you—I do talk about this before. Audra Lowe: Right. Maribel Aber: You contribute pre-taxed dollars after tax dollars that made you pain a government upfront. Audra Lowe: Exactly. Maribel Aber: So when you go and want to pull those funds later on and when you withdraw them it is tax free. Audra Lowe: With so many people like to know this. Maribel Aber: Absolutely and the thing is your earnings and your interest is able to grow or multiply all tax-free. So that is great! So the one thing to remember there is that you do not know what your taxes are going to be later on. Audra Lowe: Yeah. Maribel Aber: But you do know what your taxes are now. I mean who knows? I mean the government stealing billions of dollars in stimulus packages Audra Lowe: Uh-hum. Maribel Aber: What are taxes be? Audra Lowe: Remember about the tax and said it was a big incentive for a lot of people too so what other benefits are there to Roth IRA besides the tax? Maribel Aber: Okay so the first thing is that you are in control of your investment decisions. You’ve got more options in your portfolio by looking at the Roth IRA so that is number one. The second thing is if you have made your first investment at least five years ago you have held the account for five years and you are fifty nine and a half, when you go withdraw those funds it is tax free, no penalties and total tax free. Audra Lowe: You can take your money out? Maribel Aber: You can take your money out. Audra Lowe: No huge fees? Maribel Aber: Right! Audra Lowe: Okay. Maribel Aber: And the other big thing is I do not think people know this that you can pull out your money, your principal tax free. Audra Lowe: Yeah, people like that. Maribel Aber: People like that and the one thing to be careful is it’s your contributions. It’s your principal so it is not the earnings. Audra Lowe: Can anybody open up a Roth IRA? Maribel Aber: Well, it is a great option for a lot of people but there are definitely some eligibility requirements. Audra Lowe: Okay. Maribel Aber: So the first thing is if you are a single tax filer and you make a $105,000 or less you are not eligible and if you are a joint tax filer and the two of you together make $166, 000 or less you are not eligible but it is okay because there is a great website. It is the www.irs.gov. You can look at their different contribution levels that you can contribute to. You can make maybe a partial contribution. Audra Lowe: Uh-hum. Maribel Aber: But there is a great box that you can look at right on that site. Audra Lowe: And what about in terms of limits—as far as how much you can invest into the Roth IRA? Maribel Aber: Well, as long as you are under 50 by the end of 2009 then you can contribute up to $5000.00 into an IRA and if you are 50 or older before 2010 then you can contribute more. You can contribute $6000.00 but the thing that I want to make clear there is that is to any IRA whether it is a traditional or Roth IRA. Combined you can only make the $5000.00 or $6000.00 contribution. Audra Lowe: We got to pay attention to the numbers. Maribel Aber: Absolutely. Audra Lowe: So thank you so much Maribel. Maribel Aber: Thank you.