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A Practical Guide To Substantially Equal Periodic
Payments And Internal Revenue Code §72(t)
New Uniform Life Expectancy Table
Single Life Tables for Beneficiaries
ROTH IRA
Everyone can now increase their individual contribution while saving on taxes.
Older workers who may not have had a chance to put away as much for retirement
as they would have liked to,
get a chance to catch up.
Whether it's increasing contributions in your 401(k),
or your IRA doing it immediately will better your chances of reaching your savings and planning goals
as well as meeting your needs for a comfortable and secure retirement.
Priority! Do It Now!
The Roth IRA was conceived by the Federal Government
in 1998. It was aimed at the middle class as a sensible method to save for
retirement, and avoid the tax issues of the Traditional IRA.
The
first thing to determine when making the decision to open a Roth, is your
annual adjusted gross income. You can contribute up to $3,000 a year
($6,000 for couples) to a Roth if your adjusted gross income is $95,000 or
less for singles, $150,000 or less for married couples filing jointly.
Singles with an adjusted gross income up to $110,000 and couples with
adjusted gross income up to $160,000 qualify for a smaller partial
contribution.
Contributions to a Roth IRA can be made as long as
you have income from employment and are not limited to the 70.5 age rule
that applies to a Traditional IRA. You can fund a Roth IRA with $3,000 and
continue to make contributions based on your income until you retire. At
age 59.5, you may begin making withdrawals with no penalties or taxes.
However, there are certain rules that apply to withdrawals. Your Roth IRA
must be open at least 5 years and you have met one of the following
criteria:
1. You must have reached the age of 59.5
2. The
proceeds are paid to a beneficiary at your death
3. You have
become disabled
4. You will use the money to buy your first home
The IRS will view the withdrawal as a qualified distribution.
There will be no taxes or penalties to pay.
If you withdraw any or
all of the money from your Roth IRA early, you must report the earnings to
the IRS. The earnings would be treated as ordinary income. However, early
withdrawals will not face the 10% earnings penalty if the withdrawal is
made under the following circumstances:
1. You become disabled or
deceased.
2. The withdrawal is part of a series of substantially
equal withdrawals made at least annually over your life expectancy or the
life expectancy of you and your beneficiary.
3. The money is for
medical expenses which you will not be reimbursed for and which exceed
7.5% of your adjusted gross income.
4. The money pays for medical
insurance premiums for you, your spouse and your dependents if you have
lost your job.
5. The money is to pay for qualified higher
education expenses for you, your spouse, dependents or grandchildren.
6. You use the money as a first time home buyer.
Funding
and subsequent contributions to a Roth IRA are not tax deductible because
the funding and contributions are made with “after-tax” dollars. Once you
fund a Roth IRA, it is best to leave it alone and let it grow until you
retire. However, if you must tap your Roth IRA, you may by adhering to the
criteria already set forth. If you must make a withdrawal, do not exceed
the amount of contributions. The IRS considers the contributions made, to
be previously taxed, so no penalty will apply unless you withdraw part or
all of the earnings from those contributions. If at retirement or age 59.5
and all the requirements have been met, any withdrawals from your Roth IRA
account will be tax-free.
A Roth IRA may be opened for anyone, at
any age, with earned income and it is an excellent way to teach your child
how to save. If your child has earned income, you can set up a Roth IRA
account for him. You fund the Roth IRA in his name, making it subject to
tax rules that apply to him, not you.
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Pearson Capital, Inc. • P.O.Box 3739 • Apollo Beach • FL 33572
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