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Roth IRA Calculator
Creating a Roth IRA can make a big difference in your retirement savings. There is no tax deduction for contributions made to a Roth IRA, however all future earnings are sheltered from taxes. The Roth IRA provides truly tax-free growth.
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form_title=Roth 401k form_header=Start investing in your retirement by opening up a Roth 401k account. Find a personal finance expert to help you reach your retirement goals! Do you know the difference between a standard and Roth 401k plan?*= () Yes () No Do you currently have money invested in another 401k plan?*= () Yes () No Are you interested in converting a 401k to a Roth IRA?*= () Yes () No Does your employer match your contributions to any Roth 401k plans?*= () Yes () No
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Roth vs Traditional 401(k)?
A 401(k) contribution can be an effective retirement tool. As of January 2006, there is a new type of 401(k) - the Roth 401(k). The Roth 401(k) allows you to contribute to your 401(k) account on an after-tax basis - and pay no taxes on qualifying distributions when the money is withdrawn. For some investors, this could prove to be a better option than contributing on a pre-tax basis, where deposits are subject to taxes when the money is withdrawn. Use this calculator to help determine the best option for your retirement.
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Roth IRA Conversion
In 1997, the Roth IRA was introduced. This new IRA allowed for contributions to be made on an after tax basis and all gains (or growth) to be distributed completely tax-free. Since then, people with incomes under $100,000 have had the option to convert all or a portion of their existing Traditional IRAs to Roth IRAs. Beginning in 2008, participants with funds in eligible employer sponsored plans could also roll those funds directly over to a Roth IRA in a qualified rollover if their income did not exceed the $100,000 threshold. Starting in 2010, all IRA owners and participants in eligible employer sponsored plans, regardless of income level, will be eligible to convert their Traditional IRA and pre-tax funds in an employer-sponsored plan (401(a)/(k), 403(b) and governmental 457(b)) to a Roth IRA. Is this a good option for you? A conversion has both advantages and disadvantages that should be carefully considered before you make a decision. This calculator compares two alternatives with equal out of pocket costs to estimate the change in total net-worth, at retirement, if you convert your Traditional IRA into a Roth IRA.
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Roth IRA may be a term you’ve heard, but you may not know exactly what a Roth IRA is. The Roth IRA is named after its main sponsor, Sen. William Roth. It was created an alternative to other retirement planning options and may be the most advantageous option for middle income earners due to its potential for tax-free growth and tax-exempt earnings. While similar to a traditional IRA, there are some key differences investors should be aware of.
Investments outside any IRA plan are essentially taxed twice. Your original earnings are taxed before being invested plus your gains are taxed when you sell. IRAs provide a tax break at either the front or back end. Traditional IRAs provide the tax break on the front end. Contributions are pre-tax dollars which reduce your taxable income at the time of the contribution, your money grows tax-free while invested in a traditional IRA, but your earnings are taxed when you take distributions from your IRA.
Roth IRAs provide the tax break at the back end. Your contributions are not tax deductible, so there is not reduction of your taxable income up front; your money grows tax free while invested; plus you pay no tax at on your earnings when you begin taking distributions.
Some of the other key aspects of Roth IRAs include the following:
•All IRAs have restrictions on income: one limit to be able to receive the full benefit of the IRA and another limit to be able to receive a partial benefit from contributing. The income limits for Roth IRAs are higher than those for Traditional IRAs.
•Traditional IRAs require mandatory distributions beginning at age 70.5. Roth IRAs have no mandatory distribution age.
•Direct contributions to Roth IRAs may be withdrawn tax free at any time. This is not true for Traditional IRAs.
•Earnings on Roth IRAs may be withdrawn tax free provided the qualifications of being at least 59 ½ and the seasoning period of five years have been met.
•Roth IRAs include a provision for a tax-free $10,000 maximum lifetime earnings withdrawal for the purchase of a principal residence for a first-time home buyer.
•In general, Roth IRAs have fewer requirements and restrictions regarding wit
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One of the most important financial responsibilities that every person has is to properly prepare for retirement. To help people plan for retirement, there are various financial products that provide various incentives for saving. One popular retirement product is a Roth IRA. While a Roth IRA is similar to other retirement investing products, there are various characteristics or Roth IRAs that separate them from traditional IRAs and other retirement accounts.
The main characteristic that separates a Roth IRA from other retirement accounts is that the contributions are not tax deferred. While this means that a person will have to make contributions with after tax dollars, this is not necessarily a disadvantage. If an investor is young, or expects to be in a higher tax bracket upon retirement, the investor would be better off taking that tax hit now as opposed to later. Also, investing if a person feels tax rates will increase in the future, then taking the tax hit now also makes financial sense.
One advantage of investing in a Roth IRA, and other non tax-deferred accounts, is that money may be withdrawn tax free at any time. Also, with a Roth IRA, after money invested has met the five year seasoning requirement, withdrawals may be met penalty free regardless of the age of the investor. Similar withdrawals made out of a traditional 401k or IRA would come with not only, but also a 10% penalty for early withdrawal for a person less than 59 and a half years old.
Another advantage of investing in a Roth IRA is that there are no withdrawal requirements. Tax deferred accounts, such as a 401k, require a person to begin withdrawing from their fund by the age of 70 and a half years old. Since a Roth IRA investor has already paid taxes on their investment, they are not subject to such requirements. This will allow a person to keep their funds in their Roth IRA for a longer period of time, which will allow it to continue to grow tax free.
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When it comes to making financial decisions, one that is confusing to many is the choice between a Roth IRA and a traditional IRA. This can be a complex discussion filled with caveats and exceptions, special cases and conversion decisions. I’m not going to get into all those details here. I simply want to explain with this post the main difference between a traditional IRA and a Roth IRA.
First, let’s tackle the traditional IRA. Here’s an account that promises tax benefits. You put money into it and you can claim a tax deduction when you file taxes for the amount of money you added to the account. In essence you get to put the money in pre-tax. Even though you may have had taxes withheld from that money initially you get it back when you file.
That’s not the only tax benefit of the traditional IRA. Once the money is in the account it will (hopefully) grow. If in a regular brokerage account the interest, dividends, and realized capital gains the account accrues would be taxable within the year they occur. So as the money grows you’d be forced to pay taxes on that growth. But if the money is invested in a traditional IRA, all of that growth is tax-free. (Technically, it’s tax-deferred because, as you’ll soon see, there is a tax bill coming.) You don’t pay taxes on the growth at the time it is happening. So when do you pay taxes on this money? You have to pay taxes on it when it is withdrawn. As you take withdrawals from the account, presumably in your retirement years, the withdrawals are taxed to you as income.
The Roth IRA also enjoys the tax-free growth. If you understand the traditional IRA then the Roth is simple. Instead of the money being taxed at the back end when you take withdrawals, it is taxed up front. So in the case of the Roth IRA, you take after-tax dollars and invest them in the account. Since you’ve already covered the taxes on those dollars, in the Roth, the money grows tax free and when withdrawn is also tax-free. The Roth IRA allows you to get your taxes out of the way up front and not to have to worry about paying taxes on your retirement income.
So which is better? It depends entirely on your unique situation and what is going to happen in the future. Since none of us knows the answer to the latter, I suggest discussing the former with a financial professional and coming to decision that is right for you.
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A Roth IRA has the same rules as a traditional IRA with a few notable exceptions. Contributions to a Roth IRA are not tax-deductible as contributions to a traditional IRA. A person can only contribute up to a certain amount to the IRA each year and there is a maximum income limit. If a person earns more than the limit, she can contribute to a traditional IRA but not the Roth
Contribution LimitsIf a person has an adjusted gross income that is less than $122,000 in 2011, she can contribute up to $5,000 to a Roth IRA. People who are married and file jointly can earn up to $177,000 in 2011 and still contribute to a Roth IRA. She can only contribute money she earns during the year. For example, if her income is $3,500, she can only contribute $3,500 to her IRA. If a person is over age 50, she contribute an extra $1,000 to her IRA each year, for a total of $6,000.
The $5,000 limit is the total combined for all the IRAs a person may have. For example, if someone has a Roth and traditional IRA, she may only contribute up to $5,000 total to the accounts, not $5,000 to each account. Married couples can contribute $5,000 each.
TaxesUnlike a traditional IRA, the contributions to a Roth IRA are no tax-deductible in the year they are contributed. This has several benefits. When it is time to withdraw the money from a traditional IRA, a person will have to pay tax on the earnings and on the original amount. When it is time to take a withdrawal from a Roth IRA, no taxes are due on the money, for both original contributions and any earnings. Not owing taxes in retirement is beneficial if a person expects that they will be in a higher tax bracket during their retirement years.
Other RulesPeople usually need to wait until they are age 59 1/2 before they can withdraw from a Roth IRA. There are a number of exceptions to this rule. For example, a person can use the money in an IRA to purchase their first home. Unlike traditional IRAs, a person can leave the money in the account indefinitely and does not need to begin taking distributions at age 70 1/2.
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Roth 401(k) vs. Traditional 401(k) and your Paycheck
A 401(k) can be an effective retirement tool. As of January 2006, there is a new type of 401(k) contribution. Roth 401(k) contributions allow you to contribute to your 401(k) account on an after-tax basis and pay no taxes on qualifying distributions when the money is withdrawn. For some investors this could prove to be a better option than the Traditional 401(k) contributions, where deposits are made on a pre-tax basis, but are subject to taxes when the money is withdrawn. Use this calculator to help determine the option that could work for you and how it might affect your paycheck.
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There are two most popular Individual Retirement Accounts: a traditional IRA and a Roth IRA. Both of these IRAs have unique features and benefits, and depending on the tax consequences you desire, one may be more suitable than the other. To get a better understanding of the benefits of a Roth IRA it is best to compare it to the traditional IRA.
Contributions made to a traditional IRA are tax deductible on your individual income tax return. A single person can contribute as much as $5,000 to a traditional IRA account and receive a deduction for the same amount (as long as you are below the 2011 phase-out income limit of $58,000-$68,000 for single filers and $92,000-$112,000 for married filing jointly). An individual must have earned at least $5,000 in income and be under the age of 70 1/2 years to qualify for the deduction. With the traditional IRA contribution deduction, an individual can defer income taxes on up to $5,000 of taxable income and have earnings on the traditional IRA grow tax-free until your withdrawal at retirement. An individual must wait till the age of 59 1/2 to withdraw from a traditional IRA. Withdrawals made prior to that will be subject to a 10% early withdrawal penalty and income tax as well. When an individual finally reaches the age of 59 1/2, he or she can withdraw their savings from the IRA, but the withdrawals will be subject to income tax at that point in time. In essence the traditional IRA allows an individual to defer taxes on these savings till the future.
A Roth IRA on the other hand does not qualify an individual for an income tax deduction. However, withdrawals made from a Roth IRA at retirement are not subject to income tax. An individual can make withdrawals from a Roth IRA tax-free at the age of 59 1/2 as long as the account has been maintained for at least 5 years. So in that regard withdrawals from a Roth IRA are tax-exempt at retirement. You can make qualified contributions of up to $ 5,000/person to a Roth IRA (as long as you are below the 2011 phase-out range of $110,000-$125,000 for single filers and $173,000-$183,000 for joint filers).
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Roth individual retirement accounts (IRAs) have specific rules with regards to their use. If ignored, it can cost a saver a considerable expense.
First and foremost, only monies that have already been taxed can be deposited in an IRA. It's not possible to direct payroll earnings to a Roth before withdrawals and taxes have been applied to that income.
Next, Roth accounts have certain deposit requirements. While there is no minimum amount that must be deposited, the funds need to sit in the account at least five years from the time of the first deposit before a withdrawal can be made penalty free. Doing otherwise can trigger a 10 percent penalty that you will have to pay at income tax time. Total deposits per year are capped at $5,000 annually as of 2011.
There are exceptions to the withdrawal rule. If you are 59 _ years or older, withdrawals are penalty free. Additionally, if you withdraw the funds to pay for a first home purchase, secondary higher education costs, or critical medical bills, no penalties are applied either.
It is important to note that the penalties generally apply on the interest gained in the account after the first five years of savings. This is because the saver has already paid taxes on the funds, so it makes no sense in fairness to tax the funds again.
Finally, the major savings benefit of the Roth IRA involves expectation of earning in later years. Originally, people used a traditional IRA because they expected their tax level to be less in their later years, being retired. So withdrawals in the future earned in a high tax bracket would get taxed much lower when actually needed.
However, many people in the senior years today still bring in much more income than originally expected. As a result, the tax savings assumption didn't come true. The Roth IRA avoids this problem since once the funds are deposited today, they don't get taxed again, ever (unless Congress changes federal law). For those working later on in their senior years, this means they have a pot of savings that is essentially tax free when needed.
Roth IRAs can provide important retirement savings, but people need to pay attention to the account rules to avoid needlessly losing savings to penalties.
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Jacquelyn Roth's birth name is Jacquelyn Elsa Nettie Roth.
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Katie Roth Collins's birth name is Kathryn Roth.
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Joseph Michael Roth's birth name is Joseph Michael Roth.
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Rolf Roth has written:
'Rolf Roth' -- subject(s): Swiss Arts
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The Roth IRA was named after Senator William Roth of Delaware. They were introduced in 1998.
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David Lee Roth has written:
'David Lee Roth - Eat 'Em and Smile'
'The Very Best of David Lee Roth'
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A Roth conversion calculator is a program to help determine if a Roth IRA is right for you. In some cases you wil benefit by converting your traditional IRA to a Roth
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Yes, it is possible to rollover a Roth IRA to another Roth IRA. This process is called a Roth IRA rollover and can be done without incurring taxes or penalties if done correctly.
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