Among the various kinds of Individual Retirement Account (IRA), the Roth IRA is one of the most popular retirement plans. It is a powerful, tax-advantaged, investment product. The biggest advantage of this is the fact that individuals have the benefit of growing and withdrawing their wealth tax free. However, irrespective of the kind of IRA you choose, the Federal government imposes annual contribution limits. After 2010, the contribution limit has risen in increments of $500 depending on the level of inflation. Similarly, the deposits into your account need not have to be made at the same time.
The contribution limits for this IRAs are based on the assumption that you are qualified to contribute to a Roth account which comes under the 2011 IRS income limits.
If you are of the age 50 or older than that, then there is a contribution limit of $5000 across all Roth IRAs. However, the IRS allows the account holders in this age group to contribute an additional $1000 as “catch up” contributions. This allowance is provided in order to assist those individuals who are behind in retirement saving. However, it is available to all those who are above the age of 50 and those who qualify for a Roth IRA.
Even if you are under the age of 50, the limit on contributions is still $5000 to a Roth IRA. This amount is the total one can contribute across all Roth IRAs one can have with multiple providers. You can contribute $2000 to a this with a single provider and with a second provider you can contribute $3000. However, you cannot contribute $5000 to the first and again $5000 to the second provider. Your total contribution limit for a year is just $5000 for all the accounts in one tax year.
The time span of during which an account holder can contribute money is from January 1 of the current tax year to April 15 of the following tax year. The contributions are usually made with post- tax dollars. The one advantage of this is that since you pay tax today, no tax is charged to you in retirement.
There are many reasons why most of the people are attracted towards a Roth. The basic reasons include its simplicity, flexibility, convenience and the possibility of putting there more money than in a traditional IRA. You have an easy access to your incomes and the account demands very simple contributions. The amount of money that you are allowed to put is already declared and thus you need not measure how high the percentage of your conversions can be. However, the older you are, the more money you can convert.
Similarly, creating a Roth IRA is not that difficult. Unlike many other retirement plans and other kinds of IRAs, Roth IRAs do not require a pile of unnecessary paperwork. If required you can also do it online and can easily manage your money online by making contributions from your bank account. For some of us, the contribution limits may not seem very encouraging, but the fact is that a retirement account is not the only way of saving money.