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Roth IRA

A Roth IRA is a unique type of tax-free retirement account. Unlike a traditional IRA or 401k, there is no upfront income tax deduction for investing in a Roth IRA - meaning, it is a tax-free retirement. Income contributions with Roth IRS grow tax-free withdrawal of the money at retirement, unlike the traditional IRA or 401k where investments are not tax-free but tax-deferred until the withdrawal. Just as with other types of retirement plans, there are income limits for Roth IRA. But there are no age limits or employer plan limits. These Roth IRA income limits are determined by the Internal Revenue Service and income limits adjust over time.

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Income Limits for Roth IRA

There are income limits on who can contribute to Roth IRA distributions. Individuals and couples with very high incomes are limited from Roth IRA contributions, because the tax-free withdrawal benefit in Roth IRA distributions exists to encourage personal savings and are limited only to those who need it most, not as a tax barrier for the wealthy. While there are indeed income limits for contributions, there are no income limits for Roth IRA conversions. Additionally, Roth IRA distributions is most beneficial if present tax rate is lower than when you take the money from the account in the future.

Tax Free Retirement

In a qualified Roth distribution program, a participant can choose to have all or part of his elective deferral, made to a separate designated Roth account. Such "designated Roth distributions" are made on a after-tax basis. Growth in the designated Roth account is tax-free and qualified distributions are also tax-free and excluded from gross income.

A great deal to do with Roth IRA is to combine it with a 401k, traditional IRA, SIMPLE IRA or SEP IRA. These types of IRA provide you tax-deferral but if you withdraw the funds before retirement you will be liable and be charged of income taxes. But with Roth IRA, you don't get the up-front tax deduction but you don't pay taxes on the money when you withdraw it and even withdraw your contributions before retirement without penalty.

Retirement Plans
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