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Roth IRA's

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					Roth IRAs Roth IRAs share some characteristics with traditional nondeductible IRAs, but are different in some important ways. You can make after-tax contributions to a Roth IRA account up to the same annual limits as a traditional IRA. And, you don't pay taxes on the earnings as they grow in your account or upon withdrawal. Contributions are not tax-deductible. Unlike traditional IRAs, you don't pay taxes on earnings you withdraw from a Roth if you're at least 59 1/2 and the account has been open for at least five years. In addition, you're not required to begin taking withdrawals at any age, and can make additional contributions for as long as you continue to earn income. There are eligibility requirements with Roth IRAs, however. If you're a single filer, you may contribute to a Roth IRA if your modified adjusted growth income (MAGI) is $105,000 or lower in 2009. For income levels between $105,000 and $120,000, you may make a partial contribution to a Roth, and can contribute the rest to a nondeductible traditional account. You aren't eligible to contribute to a Roth if your MAGI is above $120,000. If you're filing a joint return, you may contribute the maximum amount into the Roth IRA if your combined MAGI is $166,000 or lower in 2009 or $167,000 or lower in 2010. You may contribute a portion of your contribution to a Roth - in decreasing amounts - if your income is between $166,000 and $176,000 ($167,000 and $177,000 for 2010). You're ineligible for a Roth if your joint MAGI is above $176,000 ($177,000 for 2010). Withdrawals If your Roth IRA account has been open for at least five years, you don't owe any federal income tax if you withdraw from your account at 59 1/2 or later. Moreover, there aren't any mandatory withdrawals, so you can take your retirement money out on your own timetable.

Investing in Your IRA You have a wide range of investment alternatives with your IRA, provided you choose a custodian that provides access to the products in which you're interested. For example, you can invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), managed accounts, options contracts and real estate investment trusts (REITs), among other alternatives. In fact, the only restrictions forbid gemstones, art, collectibles and non-U.S. coins. However, not all of your possible choices are well suited for IRAs. Municipal bonds are one example. Though interest from municipal bonds is tax-free when they're held in a taxable account, you'll owe taxes on the interest if the bonds are held in a traditional IRA. That's because the earnings on all assets held in a traditional IRA, regardless of their type, are taxed at your regular rate when you take distributions. In addition, though the interest is tax-free when distributed from a Roth IRA, municipals typically pay lower rates than comparable corporate bonds, which may leave you with fewer earnings than you may have been able to accumulate.

You may also want to consider the impact of trading costs if your investment approach means you adjust your portfolio frequently. Whatever you spend on transaction and asset-based fees reduces your potential return. Because IRAs have a long time horizon, a buy-and-hold strategy may make more financial sense. IRA Permitted Investments Because the IRA is a vehicle tailored for "savings" and more specifically for retirement savings, the IRS has established rules that state very clearly which investments are "allowable" in an IRA account. IRA permitted investments include:  Stocks
     

Bonds Unit Trusts Mutual Funds Government Securities Selling Covered Calls Purchasing Calls*

IRA disallowed investments include:  Selling Puts


				
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