I have a question about Roth IRA's

[flygirrll]

I was reading Motley Fool until my eyes bled about IRA's. Now in one page, it says earnings are taxed. On another page, it led me to believe that its all tax free, as long as you've had the account at least 5 years and you are at least 59 1/2 years old before you start taking money out. I understand that you don't get to deduct your yearly contributions to a Roth, like you can with a traditional IRA. I'm just confused if you have to pay taxes every year on your earnings in a Roth or not.

 

Help me out here, you smart people you!

 

TYIA!

Edited March 22, 2005 by flygirrll

[Hwkdrvr]

The money you use to fund your Roth IRA is already taxed. It is included in your tax papers at the end of the year and you pay tax on that money. Once you open a Roth IRA, you always have access to your original contributions without any penalty (you have already paid tax on that money). If you dip into the earnings of your contributions prior to having the account for five years AND 59 1/2, you will pay tax and some kind of early withdrawal penalty. Otherwise, the earnings of your ROTH IRA are not taxed. When you receive disbursements from your Roth in retirement (after 59 1/2) you will not be taxed.

 

 

HTH

 

Michael

Edited March 22, 2005 by Hwkdrvr

[flygirrll]

Thanks Michael! Let me ask you a question, do you have an IRA? If so, what do you have it invested in, CD's, mutual funds? I was considering index funds, any opinions?

[54regcab]

For IRA's use an investment company like T.Rowe, Vanguard, Fidelity, etc. Banks and Credit unions are poor places to hold retirement accounts. Mutual funds are the best bet IMHO (that's where i keep MY retirement), no way I would consider a CD for retirement funds. There has been much debate on if index funds or actively managed funds are the way to go, nobody said you can't put some in each

Edited March 23, 2005 by 54regcab

[flygirrll]

Thanks for your input, every lil bit helps. I'm a novice at this and doing my best to learn. Thats why I'm considering index funds, from what I understand, they're a safer investment until I know more about what I'm doing.

[hegemony]

at least I used to be able to have a ROTH. no more

[54regcab]

at least I used to be able to have a ROTH. no more

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What happened to your Roth option?

[hegemony]

What happened to your Roth option?

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gov't won't let us contribute to ours. Stupid income cap on the Roth rules means we will not get the tax benefits of roth earnings

[Hwkdrvr]

Buy a book or search the net and spend some time reading about personal finance. Investing for Dummies or Personal Finance for Dummies are two great books that cover the basics of mananging your money. Do as much research as you can before spending your money.

 

While you are doing your research, open a high interest bearing savings account (ING Direct, GMAC Bank, Emigrant Bank, etc...) and start socking away your 3-6 mos. of living expenses (emergency fund). Max out your 401, 403 or 457 plan (employer sponsored savings plan). Take the remaining money and invest it in whatever vehicle you like. There are many schools of thought about how to get the most bang for your buck. Your best bet is research, research, research........!

 

I have the requisite emergency fund; I have maxed my 457 plan; I am in the final stages of paying off my debts (2 more months until I am compeletly debt free) and I am saving to invest in a Roth IRA.

 

My 457 is spread out over Gov. Bonds (10%), S&P 500 index (25%), Small Cap index (25%) and an International index (40%). My best performing fund is the international fund.

 

I plan on investing in the Rogers International Commodities Index within the next few months. Everything I have read lately says that we are in a bull market for commodities and energy stocks.

 

When I read in the news that the Chinese economy has experienced a hard landing, I intend on purchasing some iShares ETF's that invest in China (FXI).

 

There are a few other things that I plan on investigating to diversify my portfolio.

 

Good luck in your research!

 

HTH,

 

Michael

Edited March 23, 2005 by Hwkdrvr

[54regcab]

What happened to your Roth option?

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gov't won't let us contribute to ours. Stupid income cap on the Roth rules means we will not get the tax benefits of roth earnings

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That really sucks since your high income doesn't go far where you live (Didn't you say the AVERAGE house in your city cost almost $300K?) Shame that the income limits aren't cost of living adjusted somehow. Making $100K where you live is like making $30K in Oklahoma (Average house price here is $100K) yet the IRS doesn't care.