What Is Roth Ira

Frequently Asked Questions

1. QUESTION:
   What is the difference between a Roth IRA and a Roth IRA term cd?
   What is the difference between a Roth IRA and a Roth IRA term cd? Does the Roth Cd act like a regular cd but with tax free interest? When the Roth CD term is up, do I have to roll it over into another Roth Ira cd? If I end the Roth Cd at the end of the term, is there a penalty?

   • ANSWER:
     Let me explain. You can take the money out of the Roth IRA account at anytime, but you may need to place the money back into the account or you will be taxed. A Roth IRA is a retirement account which requires 00.00 and may be withdrawn when you are 59 1/2. You will not be taxed as long as you take this money out after your 59 1/2. Take the money out before 59 1/2 and you may be taxed. A Roth IRA CD has a higher interest rate than the Roth savings account. Keep your money in here and you can earn more money. The roth IRA accounts(savings and CD) are designed to be withdrawn after your 59 1/2. Please don’t put your money here unless you want to save it for your retirement. Join my storeonwheels group in yahoo groups when you have money or business questions.

2. QUESTION:
   What exactly is a Roth IRA and should I start putting money in it? Im 22?
   Im 22 and just started my first “real job” right out of college. About to finish paying off my student loan and was looking at also investing in mutual funds and a Roth IRA. What all is involved with a Roth IRA? Does it have its on interest rate or whats the deal?

   • ANSWER:
     A Roth IRA is a tax advantaged account that allows you to put money into it after taxes, and allows the money to grow tax-free from that point forward. Therefore, as your investments grow, you will not have to pay taxes on that money ever again. The only potential downside is that once the money is invested in a Roth, you cannot take it out until you are 59.5 years old (government regulation). But, there is a huge advantage to having your money grow tax free.

     And once the money is in the Roth IRA account, you can invest in anything you want – stocks, mutual funds, bonds, etc. It is the perfect savings tool for someone in your situation.

3. QUESTION:
   What is the difference between a roth IRA and a normal investment account by a broker?
   1. In both cases I can invest only after tax money.
   2. I can withdraw my money whenever I want in both cases.
   3. I can only contribute ,000 per year in the roth IRA while I can contribute how much I want with a normal investment account.

   So why would I choose to open a roth IRA instead of a normal investment account where I can invest how much I want?

   • ANSWER:
     Any growth experiened in a ROTH IRA account is not taxed. Nor is taxed when you withdraw the money.

     With a standard investment you will be taxed when you realize any profit by selling the investment.

     So take an example where you have a ROTH IRA and a standard investment. Both start at 10,000 and both grow by 10%, to 11,000.

     When you withdraw your IRA (assuming no penalties for ealry with drawal), you will get the full ,000

     When you withrdraw the investment you will have to pay taxes on the ,000 of growth, so maybe you walk away with only ,700.

     This difference could add up to a huge amount over the lifetime of a ROTH IRA

4. QUESTION:
   When I withdraw money from my Roth IRA, do I have to deduct Federal or State taxes?
   I rolled over a rollover IRA into a Roth, which is now called a Roth IRA. When filing tax return, I had to pay Federal taxes on the whole amount that was rolled over. When I withdraw from my Roth IRA in the future, do I deduct Federal & State taxes from the amount that I am withdrawing, & if so, what percentage do I use. Will I get taxed on the amount of money that I withdraw, when I file next year’s taxes?

   • ANSWER:
     The year in which you transfer/roll the IRA into a Roth IRA is the year you pay state and federal taxes. Once the $ is in the Roth you never pay state or federal taxes on that money again no matter how much it grows………….. hmmmm…. unless the govt. changes the rules down the road…. but for now…. No. You don’t pay again no matter how much the money “grows.”

5. QUESTION:
   What is the difference between a Roth IRA/IRA and mutual funds?
   Isn’t an IRA or Roth IRA just a bunch of mutual funds or should I go to Investing 101?
   Thanks.

   • ANSWER:
     Yep, you’re Investing 101 material and so are a million other people! The good news is that you are smart enough to ask the right question. An IRA ***of any kind*** is nothing but a retirement account designed to defer earned and unearned income until you are eligible to make withdrawals. In other words, it’s an empty shell until you put something in it. So, what can you put into an IRA? The average investor invests in stocks, bonds and mutual funds. The majority of wage earners invest in funds. More experienced investors buy stocks, bonds, options contracts and real estate in theirs. Check out the IRS website for complete information on this subject.

     Mutual funds are investment companies that buy stocks and bonds with the objective of making a profit. You can invest in a mutual fund with money that is deposited in an IRA or in a regular taxable account. If the fund is not sheltered in a retirement account, the income and capital gains are subject to personal taxes during the year when the gains took place. The IRA protects your gains from being taxed. You pay taxes on any income you receive, starting at age 59 1/2.

     Hawk

6. QUESTION:
   What’s the 2008 contribution limit for Roth 401k and Roth IRA combined?
   Like the question asks what is the combined total limit for the Roth 401k and the Roth IRA? I’ve read too much conflicting information that you can contribute the full 5k in the Roth IRA and 14k in the Roth 401K? Then I’ve checked with financial advisors and they indicate otherswise. Hm, please CITE sources with your response, need accurate information.

   Lastly, if anyone know what the combined limit between the Roth401k, Roth IRA and the traditional 401k also list it as well.

   Thanks!
   Can Icontribute to all three: Roth 401k, 401k and the Roth IRA?

   I know you can do the last two but what about all three?

   I am of course referring to just partial amounts so I don’t exceed the 15k annual limit and the as far as I know the 5k limit for the Roth IRA is considered separate. Thanks!
   Forgot to mention within the Roth IRA AGI limits and under the age of 50.

   • ANSWER:
     The 2008 limit for a 401k is ,500. If you’re 50 or older in 2008, you can contribute an additional ,000.

     The 2008 limit for IRAs is ,000. If you’re 50 or older on 2008, it’s ,000. However, your ability to contribute to a Roth IRA is reduced or eliminated if your modified adjusted gross income exceeds a certain amount. The amount depends on your filing status. See IRS Publication 17 for details. You can download it from www.irs.gov.

     The combined limit is the individual limits added together (,500 or ,500 depending on your age and subject to adjustment if have a Roth IRA and your modified AGI exceeds the limit).

     The limits apply regardless of whether the account is a Roth, traditional, or if you put some money in one of each. For example, let’s say that you want to fully fund your IRA, you’re under 50, and your modified AGI is less than the limit for a Roth IRA. You can put ,000 in a traditional IRA. You can put ,000 in a Roth IRA. Or, you can put some in both accounts as long as the total contributions to both accounts combined does not exceed ,000.

7. QUESTION:
   How do I invest my money in a Roth IRA?
   A friend told me that I should put my money in a Roth IRA for my future investments and retirement. I don’t know much about it and/or how to put my money into one but I am curious. I am a 17 year old emancipated minor in California who has a bank account already and a job.

   Thanks for all the help in telling me what a Roth IRA is and how to put my money in one (if I even should) in advance.

   • ANSWER:
     I think that it is great you are thinking about your future finances and retirment. It is never too early. Just make sure that any money you put in an investment is disposable cash, meaning you are willing to live without it.

     I think your friend is right. The sooner you start, the better because the money compounds over time. Basically, a Roth IRA is a tax deferred earning account. You can open an IRA account any where. It just depends where you want to invest it in. For example, I use my IRA to invest in stocks. So I open the account with E-trade to buy shares of the company I am interested in.

     You can use your IRA money in CD’s, Bonds, Mutual Funds, or whatever you want. Just know you are capped at the limit of K this year.

     Good luck

8. QUESTION:
   How much I am allowed to contribute to my ROTH IRA as a married couple?
   My husband and I currently have one ROTH IRA under my name.
   I also have 401k at my job, and he has his 401 at his job.
   I am wondering could he also contribute to an ROTH IRA?
   If so, what is the limits for him?

   • ANSWER:
     Depending on your age. If you are over 50, then you can contribute 00 each as long as you have made at least ,0000 in income. If you are under 50, then the max is ,000 each.

     Now if you make more than 166,000 as a couple, then those limits are less.

     If you do make over 6,000 then I would make a trad ira contr and then convert to a roth.

     If you do make over 6,000 I would always talk with a tax advisor on anything that you do, especially when it comes to roths.

9. QUESTION:
   Is it smart to use my Roth IRA towards my morgage?
   I have a nice down payment I’m putting on my first house, but wondered would it be smart to add in money from my Roth IRA? What is better in the long run. As of now I am planning on living in this house for a long period of time, but everyone knows that can change.

   • ANSWER:
     I wouldn’t if I were you…

     If you already have a down payment on your house, I’d keep your investments for any unforeseeable need in the future. I understand you want to live in this house for a long time, and you will presumably allow the equity to grow, however with the mortgage industry as bad off as it is now, property values may continue to fall and in 5 years you have something come up and you try to take a HELOC (home equity line of credit) on your house or refinance it, you might find it isn’t worth what you paid for it.

     Keep the IRA safe, it isn’t hurting anyone where it is right now.

     -Em

10. QUESTION:
    What are the tax implications for Canadians for 401k and ROTH IRA at retirement?
    How do taxes work when Canadians who may have worked in the US withdraw money from their 401k or ROTH IRAs at retirement? Someone told me that a 401k can be withdrawn (and taxed in the US), but when the money is taken to Canada it will not be additionally taxed. However, the ROTH IRA would be taxed as new income in Canada. Is this true? If so, this defeats the whole purpose of the tax free growth provided by the ROTH IRA.

    I am currently working in the US but am a Canadian Citizen and hence dont really know where i will be come retirement (40 years away) so I am not sure as to where I should invest. I am trying to collect details so I can make an informed decision.

    Thanks
    Mathew, I know how the taxes work if you remain in the US. I need to find how they work if you plan to take the money to Canada. Of course I dont know how things will work in 40 years, but how do they work now?

    • ANSWER:
      For US taxes the 401 k disbursements will be taxed at your tax rate when you retire and the Roth disbursements will be tax free. Who knows what the Canadian tax rules will be in 40 years.

11. QUESTION:
    How do I go about getting a Roth IRA started?
    I’m 23, married, and interested in opening a roth IRA but I have no idea where to go, what bank to use or what my options are. I’ve done my research and know that this is the type of account I want but haven’t been able to find advice on how to get the ball rolling. Any advice or suggestion would be appreciated =)
    Also, what is the minimum amount to open the account?

    • ANSWER:
      You can open a Roth IRA at any bank or brokerage firm in the country. You could invest the money in a CD or a Mutual Fund. You can think of the Roth IRA as a kind of wrapper around an investment that shields the investment from income taxes.

      The larger brokerage companies will allow you to open your account online. Some accounts have no costs other than the mutual fund management fees. Others charge an annual fee, on top of the management fees, of – or so. A three of the larger mutual fund houses that offer Roth IRAs are:

      Fidelity:

      http://personal.fidelity.com/products/retirement/getstart/open_nofee_ira.shtml.cvsr

      Vanguard:

      https://personal.vanguard.com/us/accounttypes/retirement/ATSStartSavingRetVGIIRAContent.jsp

      T Rowe Price:

      https://www3.troweprice.com/nmf/NMFWeb/pubOpenNewAccount.nmf?path=open&src=iramicro

      If you’d like to read more about Roth IRAs, here is a link to an article on how to start a Roth IRA

      http://www.getrichslowly.org/blog/2007/06/07/how-to-start-a-roth-ira-and-where-to-do-it/

      I hope that helps.

12. QUESTION:
    what is the best advice for switching my regular IRA to a Roth IRA?
    Considering the current price of stocks, isn’ t this the best time(2008)to switch to a Roth IRA so that I can reduce my regular IRA minimum required distribution, in order to pay less income tax in the coming years? I am 73yrs old

    • ANSWER:
      Convertng to a ROTH does not mean that you must invest in stocks. That’s an independent choice. You could do stocks… or CDs, or Treasury bills, etc. Whether to switch is more related to your tax and financial situation. It coud be a great decision, or a poor decision. It just depends on your situation.

13. QUESTION:
    What happens after opening a Roth Ira in a Mutual Fund?
    Hello,
    I have a Roth Ira CD in a bank, I am thinking about buying a mutual fund and put my Roth Ira there instead. But, I would like to know:
    -How to open a Roth Ira in a Mutual Fund?
    -Is it better to open the Roth Ira in a mutual fund directly with the mutual fund company?
    -After opening the Roth Ira in a mutual fund, what should I expect? What happens after that? Is it safe?

    Thank you

    • ANSWER:
      You asked: -Is it better to open the Roth Ira in a mutual fund directly with the mutual fund company? Yes it is. The banks and discount brokers will charge you a fee to invest in Vanguard’s and other very low expense funds.

      -After opening the Roth Ira in a mutual fund, what should I expect? What happens after that? Is it safe?

      You will get quarterly statements (Vanguard will charge you an account maintenance fee if you insist on paper statements. Get everything from them via the web, print it out yourself if you need paper and then they will not charge you extra) showing account activity. What happens after that? Sit back and hopefully watch the account value grow.

      Is it safe? Value of the fund will vary as goes the stock market. It is not like a CD. But, with CDs, you will lose power of the money to inflation, so in my opinion, over the long term, equity mutual funds are safer. Since around 1926, there has never been a 20 period where you would have lost money investing in a well diversified stock index fund. As to what happens if the mutual fund company goes bankrupt, your fund is safe. Legally, mutual funds (an example: Vanguard Total Stock Market Fund) are completely different companies than the fund’s “family parent” (The Vanguard Group Inc.). If the “parent” (Vanguard Group) goes bankrupt the fund’s board of directors will just transfer the fund to another manager or “parnet” (like T. Rowe Price).

14. QUESTION:
    What is the best sort of investment to put into a Roth IRA? High dividend stocks?
    I’m going to be starting a Roth IRA with the maximum contribition. I’m 33. What sort of fund would best take advantage of the tax deferral? High growth? High dividends? I don’t see the advantage of deferring the taxes on say, a stock fund, since you are still going to pay the capital gains on the growth when you eventually withdraw, correct?

    • ANSWER:
      No… You will not pay taxes of any kind upon withdrawal… It’s 100% tax free upon withdrawal at 59 1/2.

      I like index funds.

15. QUESTION:
    Should I convert my Rollover IRA to an existing Roth IRA?
    I currently have two IRAs, a Rollover IRA worth ,100 and a Roth IRA worth ,000. They are both at the same brokerage.

    Is it wise for me to convert my Rollover IRA to my current Roth? What kind of penalties and taxes will I have to pay? Is there a better way to minimize taxes? Should I have the tax withheld or should I pay from the taxes/penalty from an outside source rather than from the IRA?

    My current gross income is around 45k and in the 25% tax bracket.

    • ANSWER:
      Here’s the situation:

      1. Converting to a Roth does not have a penalty. All you will owe is income tax on that money, so….

      00 x 25% (your tax bracket) = 75 extra taxes you will owe

      2. It does make sense to convert this if…
      a. you have enough money to cover the tax bill
      b. you expect your tax rate to rise in the future (in other words, when you retire, you think your tax rate will be higher than it is now
      c. you want a source of tax free money when you retire

      3. Another strategy is this: you could convert a portion each year. Since this money is taxed as ordinary income, you could convert a small amount each year so it doesn’t bump you into a higher tax bracket. Also this strategy would ensure that you are not shocked by your higher tax bill at year end

      4. Once you make over 0,000, you are no longer eligible to convert (this law is changing in 2010)

      5. DO NOT, I REPEAT DO NOT WITHHOLD TAXES! take care of them yourself at year end. The reason for this is the following: if you convert lets say 00 and withhold 20% or 00, the 00 withheld goes straight to the federal government. Well, guess what? Since that money did not go into the Roth, the withholding itself is now subject to taxes PLUS a 10% penalty. Very bad deal.

16. QUESTION:
    What is the equivalent of a Roth IRA in Australia?
    I’m reading the personal finance book “I Will Teach You To Be Rich” and the author talks about Roth IRA’s. Now, I Googled for these in Australia but return no results.

    What is the Australian equivalent?

    • ANSWER:
      well I’m not Australian or an expert on Australian tax law but a Roth IRA is just a retirement trust, that doesn’t tax your Capital Gain until you make a withdraw so my first through would be a Family Trust a.k.a. discretionary trust.

      or if mutual funds are your thing a mutual fund with a dividend reinvestment plan would have the same affect
      hope take helps

17. QUESTION:
    What company is the best to start up a Roth IRA? What are the best mutual funds to invest in?
    I am looking to start up a Roth IRA since I am in a low tax bracket, and I am looking to invest in no load mutual funds, long-term. I am looking for monthly compounded interest and no fees.

    • ANSWER:
      I’m glad you are doing your homework. I would start with the Royce mutual funds.
      Invest in the Royce Low Price Stock Fund symbol RYLPX. I have owned this fund for years and I am glad I did. The Fund manager Whitney George has been with Royce for 18 years and has done a great job year in and year out.

18. QUESTION:
    What is the tax treatment for Roth IRA if AGI exceeds the ceiling?
    The ceiling for Roth IRA phase out for Married Filing Jointly is 9,000 in year 2008. Can anyone tell me what are the consequences if I make more than 9,000 with my spouse and I have already contributed 00 with my spouse for this year? I checked Internal Revenue Code on checkpoint, but I am unable to find anything relevant after a while.

    • ANSWER:
      If you don’t withdraw the contributions (plus related earnings or less related losses) by the due date of the return (including extensions), you owe a 6% tax on the amount of the excess contribution. You’ll owe this tax every year the excess contribution remains in the Roth IRA. You compute the penalty on Form 5329.

19. QUESTION:
    What is the difference betwen a Roth IRA and a regular portfolio account from a broker?
    What advantage does a Roth IRA have over a traditional portfolio account from a brokerage like Fidelity or Ameritrade, for instance?

    • ANSWER:
      First of all, IRA (Individual Retirement Account) is not a product, it is an account type. You can have almost any publicly traded assets in your IRA, just like you can have them in a regular brokerage accounrt.

      Roth IRA has a more favorable tax treatment compared to a regular brokerage account; although your contributions are not tax-deductible (as they are for a traditional IRA), there are no federal taxes that are payable on any returns from a Roth IRA, whether those returns are income or capital gains.

      Fidelity has a brief and relatively easy to read summary of differences between traditional and Roth IRAs (see link below).

20. QUESTION:
    What is there a maximum amount I can contributed to both my Roth IRA and 401k?
    For 2007 I contributed ,000 in my Roth IRA and ,500 in my 401k. Did I exceed the Maxium amount?
    Is there a combined amount that one can contribute to the plans? Or are they seperate?

    • ANSWER:
      You’re fine, you hit the max on both. For 2008 you can put 00 in the Roth.

21. QUESTION:
    Regarding investing in a roth IRA- what is a dividend? what is a capital gains distribution?
    I opened a roth IRA via sharebuileder. I am trying to invest in a mutual fund and as a 23 year old, I am very unexperienced in this area (they dont teach you these things in college!).
    It is asking me if i wanted to reinvest dividends and also asking me if i want to reinvest capital gains distributions? I dont know what either of these mean. Whats the best way for me to get the most money out of my roth IRA?

    • ANSWER:
      “It is asking me if i wanted to reinvest dividends and also asking me if i want to reinvest capital gains distributions? I dont know what either of these mean.”

      Dividends are paid by many stocks held inside the mutual fund you own. When they are received by the fund company from all the individual companies that pay them, the fund company in turn will pay them to you and all the other holders of shares of the fund. You can elect to take them as cash, in which case they will be deposited to your Roth as a cash balance, or you can elect to have them re-invested in which case they will use the money to buy you more shares of the fund.

      Capital Gains are realized by the fund when the manager sells a particular stock the fund holds for more than they paid for it. These are usually paid out by the fund once a year, typically in December. Again, you can elect to have this money re-invested or receive it as cash.

      Some mutual funds also hold bonds in their portfolio as well as stocks. (known as “blended funds”) Bonds typically pay regular interest payments. If you hold a blended fund, you are eligible to receive the interest payments from the bonds they hold also and can elect to have them re-invested or taken as cash, just like the previous two.

      “Whats the best way for me to get the most money out of my roth IRA?”

      In the case of the mutual funds you hold inside the Roth, you are generally better off re-investing dividends, capital gains and interest as this allows you to regularly gain more shares without adding more money and as the funds price rises over time, your gains are compounded that much more quickly.

22. QUESTION:
    Can I contribute to a nondeductible IRA for 2009 and then convert it to a Roth?
    I make too much money to deduct my traditional IRA contributions, and also too much to open a Roth IRA. However, from what I hear there’s no income limit for Roth conversions starting tax year 2009. Sounds to me like I could open a traditional IRA, pay taxes on my contributions, and then just convert it to a Roth for free (since I’ve already paid the taxes) and enjoy the tax advantages later on. Does this make sense, and is it legal?

    • ANSWER:
      Yuppers

23. QUESTION:
    What company should I choose for my Roth IRA?
    I’m 21, and have a TD Ameritrade account but have heard T Rowe and Vanguard is where its really at. Why is this? Also if I choose one of those companies what are the best choices for the Roth IRA?

    • ANSWER:
      It really depends on what you want to invest in and how much leg work you want to do yourself. For instance, many companies like Vanguard or Fidelity have very low fees if you invest in their mutual funds. However, you will pay a higher fee to invest in individual stocks or other funds. If you want to invest in Vanguard mutual funds, then definitely go with Vanguard. On the other hand, if you want to sit down with someone who will discuss your investments with you and help you formulate a plan, then you may want to look into a stockbroker or financial planner.

      Because you are young, you should invest mainly in growth stock mutual funds and other equity based investments. These will give you good returns without taking too much risk. If you are interested in mutual funds, then look at the track records (past performance) of the mutual funds versus the fees that you will be charged. Past performances are obviously not guarantees of future returns but it does give you a good idea.

      Hope this helps!

24. QUESTION:
    Is there a penalty if I take out money from my Roth IRA but only what I put in, not my earnings?
    I think I might have to take some money out of my Roth IRA because of a large tax bill. If I only take out what I’ve contributed, how much will I be taxed? For example, I’ve contributed over 20k of my own money but might need 5k. How much tax will I pay on that 5k?

    • ANSWER:
      There is no penalty if it has been 5 years since the contribution. But it is your contribution amount only… Not appreciation.

      Read the link… It will answer all of your questions.

25. QUESTION:
    can you get a tax refund just for opening a traditional or Roth IRA?
    I just rolled over a 401(k) from a previous employer into a traditional IRA and a Roth IRA. I’ve been seeing a lot of things about getting up to a 00 tax refund for opening an IRA if you open it before April 15 of the current calendar year. I haven’t been able to find any actual specifics on this. What is the 00 based on?

    Is it up to 00 based on contributions? Or is it 00 just for opening an IRA?

    • ANSWER:

26. QUESTION:
    How much can you put in an IRA and Roth IRA each year?
    I’ve heard their is a ,000 limit on contributing to an IRA each year. Does that count for all your IRA’s combined? Can I contribute ,000 to a Roth IRA and ,000 to a regular IRA or just a max of ,000 all around. And what happens if you go over?

    • ANSWER:
      All IRAs combined except for a SEP IRA.

27. QUESTION:
    What do I need to know before opening a Roth IRA at TD Ameritrade?
    Anything I should know before opening a Roth IRA at TD Ameritrade? Such as:
    1) Do I need to make purchases every month?
    2) What is the minimum balance to open a Roth?
    3) Is there annual fees?
    4) Is there fees for trading?
    5) Will the account close or be charged a fee if I don’t trade for long time?

    Any other things I should know would be a great help!

    • ANSWER:
      Check Vanguard.com

28. QUESTION:
    I just helped a relative open a Roth IRA and we selected that contributions from January through April be?
    applied to the prior year (in this case, 2007) rather than the current year (in this case, 2008). I did not realize that she did not have any earned income in 2007 (which is required to contribute to a Roth IRA). What steps can I take to correct this? Is it as easy as calling the company (T. Rowe Price) and having them simply change which tax year the contribution gets applied to? Thank you for your help in advance.

    • ANSWER:
      Just contact T. Rowe Price, either online or by telephone, and explain the situation. They deal with this situation all the time.

      They will re-classify the contribution from 2007 to 2008, and all should be well with the IRS as well as with your relative’s Roth.

29. QUESTION:
    How do I correct an excess Roth IRA payment?
    On 4/15/2005, I opened a Roth IRA with ,000. I did not realize that I was ineligible. There is nothing in my 2004 return that references this contribution. In 2005, I erroneously reported the contribution on line 2 of form 8606 as a basis in a traditional IRA. On 5/1/2005, I withdrew the ,000, but the earnings were not withdrawn and the account is still open. For 2006, I received a 1099-R, reporting a gross distribution of ,000 and a distribution code of J.
    I know I need to withdraw the earnings and close the account, but what IRS forms do I need to fill out (and for what years), to correct this mess?

    • ANSWER:
      Was the Roth IRA a 2004 or 2005 contribution? I assume it was a 2004 contribution and you were ineligible in 2004. So you had an excess contribution for 2004.

      Your excess contribution of ,000 is subject to a 6% excise tax for 2004. Amend your 2004 tax return to include Form 5329 and eliminate Form 8606. You will owe 0 excise tax.

      Amend your 2005 return to reflect the following:

      Your withdrawal of ,000 contribution in 2005 is not subject to income tax, it is a return of your basis. Use Form 8606 Part III to document this. Line 15a of Form 1040 is ,000. Line 15b is zero.

      Include Form 5329 to compute the 6% excise tax on the value of the account as of 12/31/2005. Attach a statement to your return to explain the situation.

      If you haven’t filed 2006, you will again include Form 5329 and pay a 6% excise tax on the value of the account as of 12/31/2006. If you have already filed 2006, you need to amend the return to include the excise tax.

      Finally, close the account in 2007. The earnings distributed to you are subject to income tax and a 10% penalty. Form 8606 Part III is used to show that all the earnings are taxable. The penalty is computed on Form 5329.

30. QUESTION:
    What funds to choose when funding a Roth IRA in today’s market?
    I am funding a Roth IRA, for the first time. Should I go conservative at first by picking bonds and other funds that do not rely heavily on the stock market, which is struggling a bit today?
    THANK YOU
    I do plan on investing on my own in the near future, I am just looking for tips on how to fund my new IRA in todays viotale market.

    • ANSWER:
      OAKBX, oakmark equity and income fund is a balanced fund, with 60% stocks and 40% bonds. It does well in all market conditions, and especially well in tough market conditions such as we see today. The fund managers are very smart, and have an excellent low risk portfolio of bonds and stocks.

31. QUESTION:
    Is it really OK to use a Roth IRA as part of a personal emergency fund or cushion fund?
    I’ve gotten conflicting advice on whether it’s a good idea to consider the savings that you have in a Roth IRA as part of you emergency fund (i.e. the 3 months of expenses that you should have readily accessible in the case of an emergency or hardship). What are your thoughts?

    • ANSWER:
      I am not a fan of raiding retirement accounts unless the emergency is dire and substantial.

      I prefer to set aside the run of the mill 3-6 months earnings emergency funds (lost job/major repair etc.) in a money market account or the highest interest rate savings/checking account that one can qualify completely separate from the checking account that all the usual expenses are paid from. (And it goes without saying that an account without fees or possibly even minimums is highly desirable.)

      The reason being is a) I try to stay in the mindset that retirement funds are for retirement, because obviously I hope to take advantage of them then. And b) more practically taking money from an IRA can make one subject to early with draw or tax penalties that can be tedious to deal with and annoyingly eat away at one’s hard earn money. (Although yes – current Roth IRA rules allow me to withdraw my principle contributions without much thought, theres’ still some risk and it’s still a set back to my retirement goals.)

      But that is my two cents. I’m not an ‘expert’ in such things though. And everyone’s financial situations are unique in some regard.

      I like to refer to the MotleyFool.com website for their opinion pieces. I think it’s a solid/easy to read reference for ‘food for thought’, as one is weighing their options.

      www.fool.com/news/commentary/2003/commentary030723bro.htm

      www.fool.com/savings/shortterm/01.htm

32. QUESTION:
    What happens if you withdrawal early from a Roth IRA?
    A traditional IRA or 401k seems easy to understand. If you take out money early, you pay a hefty tax.

    But what about a Roth IRA? If I pay taxes at the time of contribution for a Roth IRA, then decide to take out money early, do I get hit wit the same big tax?

    In other words, is it worse to withdrawal early from a Traditional or Roth IRA?

    • ANSWER:
      If one withdraws money form ANY qualified retirement account before 59 1/2 or official retirement, there is a 10% penalty on the amount withdrawn, plus ordinary income tax on non Roth income.

      After 5 years, you can withdraw up to 100% of the PRINCIPLE (the cash you put in the account) in a ROTH IRA ONLY at anytime with NO penalty. Best to try and keep it in if all possible – it should be geared for retirement only.

      The INTEREST or any GAINS MUST stay in the ROTH account until at least 59 1/2 or suffer IRS 10% tax penalty on the gains only, plus pay ordinary income tax on the entire gain that was withdrawn.

      Exception:
      ,000 may be taken out to buy a first home with no penalty. Certain health care, and high education expenses are also exempt from penalties.

      Other exemptions and taxes
      Additional Tax on Early Distributions

      http://www.irs.gov/publications/p590/ch02.html#en_US_publink1000231064

      How much will my 401K cashout tax be?

      http://answers.yahoo.com/question/index?qid=20090303111950AAijAaE&r=w&show_comments=true&pa=FZB6NWHjDG3N56z6v_2wXVTV6igbwQuehdgfQCGq2KUvXhjrBd.HQA–&paid=add_comment#openions

      Which is better?

      In my view, the ROTH offers greater long term flexibility by allowing access to your principle after 5 years where the Traditional IRA does not.

      Next, when you think 10, 20, 30+ years of growth and NOT having to pay ANY taxes on a ROTH at retirement (min age: 59 1/2), the NET growth potential of the ROTH is effectively greater because the Traditional IRA will be 100% subject to income tax in the future at whatever tax rates Congress decides.

      Example:
      Value of IRA in 20 years: 0,000
      Value of ROTH IRA in 20 years: 0,000
      Federal Tax bracket in 20 years: 20% (hypothetical)

      If take out all money at once: (normally some funds taken out each year not before 59 1/2 and not later than age 70 1/2 – minimum withdraws required by 70 1/2 – determined by a life expectancy formula – “actuary table.” – don’t need to know all this now, because the formula will change in the future.)

      Federal Tax on IRA: ,000 (20% tax bracket)
      Federal Tax on ROTH: [FAQ-ANSWER].00 (any tax bracket)

      State Tax on IRA: (depends on your state)
      State Tax on ROTH: 0%

      Best:
      Max out ROTH IRA each year. Even if you quality for the little tax deduction on the Traditional IRA with your current taxes, it will cost you more money in terms of paying more taxes in the future when the money comes out. ROTH IRA avoids the government from taking your money again in the future.

      Roth IRA

      http://en.wikipedia.org/wiki/Roth_IRA

      Roth IRAs (IRS.gov)

      http://www.irs.gov/publications/p590/ch02.html

      The aforementioned should not be deemed as tax, legal or financial advice, please see profile for full disclaimers.

      http://profiles.yahoo.com/u/CUXTCCBSBYDZODXWGYK2IZDOOI

33. QUESTION:
    How do I buy a no load mutual fund for my Roth IRA?
    How do I buy a no load mutual fund for my Roth IRA?

    It seems like any of the financial companies that you go to are hawking there products and not giving a straight answer on buying a non load mutual fund.

    Also-how can I find out what types of returns a particular no load fund is providing?

    Thanks.

    • ANSWER:
      Go to yahoo finance http://finance.yahoo.com/funds

      Use there screener to look up no-load funds, you can also see returns as well.

      Just remember past performance is not an indication of future performance

34. QUESTION:
    What companies charge the least Roth IRA’s maintenance?
    Fidelity is charging me per stock trade within my Roth IRA, and I think a yearly charge because I have stocks and not just mutual funds. Are there any cheaper financial companies?

    • ANSWER:
      Fidelity charges per trade not . They do not charge a fee for having an IRA account. But to answer your question there are companies that do not charge anything to trade. Scottrade charges .00 a trade.

35. QUESTION:
    I *technically* earned more than the limit last year but I contributed to a Roth IRA. What to do?
    The reason I earned more than the limit was because I had significant earnings from poker last year. But the way that “gambling winnings” must be expressed on a tax form — with wins as income and losses as deductions — meant that I had way more “income” than the limit, but after “deductions” I was a few thousand below the limit.

    As total net income I did not make it to the limit, so I felt safe in contributing to my Roth IRA. Is this acceptable? If not, what are the remedies?

    • ANSWER:
      Only if you had salary/wages or other income subject to social security tax. If not you don’t qualify for a ROTH

36. QUESTION:
    What is an example of it being benificial to go with an IRA rather than a roth IRA?
    I am curious in what case it would be better for someone to go with a IRA rather than a Roth IRA?

    Also I understand what both are and how they work. I just am very bad at math and dont want to calculate it out. I am hoping someone knows the cutoff where you would want to go with just an IRA and not a Roth.

    • ANSWER:
      Basically if you need a tax deduction to reduce current income the tradional IRA would be beneficial. Your investment would be putting the most money to work right away because the roth IRA would be after tax dollars. If you absolutely will need the money when you retire you will probably be in a low tax bracket and will take your mandatory withdrawls and pay a low tax on it. If you don’t necessarily need your retirement money from your IRA’s, the roth will give you the option of not having to take withdrawls. There is not a particular or specific dollar amount that will trigger the nod from one vehicle to the other. Many variables come into place when making this decision. Spouses retirement accounts for example. If your not looking to reduce your taxes, the Roth IRA is probably the way to go.

37. QUESTION:
    How and where to set up a Roth IRA?
    I am 23 years old and a recent college grad and wanted to get some info on setting up a Roth IRA. Should I do this at my bank (PNC Bank) or somewhere else. Are the rates and returns similar for anywhere I would go? What is your best advice on doing this? Good idea? Any other places to invest that would get a better return in say, 30 years or so than a Roth? Your input is appreciated.

    • ANSWER:
      Your best bet is to invest with an ” investment company”…Fidelity, T.Rowe Price, Vanguard… their main reasons for being IN BUSINESS is investing and making money grow.
      Take a few hours to look at their websites…find out what mutual funds belong in your IRA…( conservative at first?.. do you want to be aggressive for awhile?..do you want to be active or let it lay for 35 years? )
      I use Fidelity and E-trade and invest ( IRA’s ,401′s, rollovers, for myself, wife, daughters, and a couple of friends) and what I have learned is: I should have known about this approach when I was younger!!!
      The Roth is your a great choice for your first step… it is not an ” investment” by itself, what you choose to put in the Roth is your real investment….
      If you check into http://finishrich.com
      …and click on the ” latte calculator” you can get an idea of how much you can gain over different periods, saving different amounts and getting different returns…
      Please…get familiar with what’s available to you…and get a ROTH every year….find out how to up your returns with a little on-line moving…if it takes a couple of nights or even weekends, you will never regret being informed about ” investing”…..it’s something that should be taught in every school at every level …Teach people to take care of themselves and their futures…improve the lives of couples and families…. And we wouldn’t have a zillion people trying to live off Soc. Sec.
      Good luck
      P.S. I hope you get to read this part, I’m adding it much later…BUT, I didn’t want to forget to STRESS that a ROTH IRA is probably THE very best investment for an average American..”.tax-free income” an unbelievable concept!!!
      You’ll get my drift after you pay taxes on EVERYTHING for the next 30 years.

38. QUESTION:
    Would my money be better in a Roth IRA or a CD?
    I’m a college student with no bills or payments other than food. I work part time and save 10% of what I make and put it into my Roth IRA. My IRA took a big hit when the economy went bad but has recovered fairly well since. I have over ,000 in it already but I’ve only made about 4% of that investing it in mutual funds. Is there a better option? Should I put some money in a CD? Any suggestions?

    • ANSWER:
      CDs are TERRIBLE investments right now.

      Assuming this money is for RETIREMENT (since you are putting it in a retirement account) you need to stop worrying about the short term fluctuations. The more the market goes down now, the more shares you can buy. When stocks are cheap, they are “on sale”. I HOPE the market crashes often over the next decade or so while I am in the BUYING mode. When I retire in 25 or 30 years I will worry about fluctuations in the market and sell of when prices are high and move money to safer investments.

      Everytime the market goes down (like today) I transfer money from my money market into the various stock funds in my IRA.

39. QUESTION:
    What is the risk associated with a Roth IRA?
    I am so confuesd about what is the right way to invest. I wonder what the risk is assoicated with an Roth IRA. I would like to have money set aside for a down payment on a home. Can an IRA just randomly be withdrawn from? Is there more of a return from an IRA? How much of a risk is involved with an IRA. I really do not to loose any money after investing it.

    • ANSWER:
      Roth IRA: You invest post-tax income. So, you earn the money like normal, it is taxed like normal, and then you can invest it. HOWEVER, your investments grow TAX FREE!!! It’s great!

      It’s not so much that the Roth IRA is risky–a Roth IRA is just a holding account from which you can invest in stocks, bonds, mutual funds etc.

      So, as far as the risk is concerned, it depends on the particular investment that you choose to make within your Roth IRA account.

40. QUESTION:
    What do I need to do if I mistakenly make a Roth IRA contribution which I am not entitled to make?
    My wife and I have been making contributions to Roth IRAs for a few years. Last December my wife started working again and we anticipate that her income this year will push our joint income above the 0K cutoff for a Roth contribution. Before I came to that conclusion, however, I made a 00 contribution to my Roth IRA for 2007 – which I now think I am not entitled to make. My institution says that they cannot reverse out the transaction to make it appear as though no contribution was made. What will be the consequences of this mistake and is there anything I can do to fix the situation?

    • ANSWER:
      IRS publication 590 answers this. Basically, you will need to pay a 6% excise tax on the excess amount (see 590 to understand exactly what the “excess amount” is).

      You should be able to withdraw the excess contribution, as long as you have no earnings (investment gain). If you do have gains, you’re required to withdraw them, as well.

      You can apply the excess to a future year, with some provisions.

41. QUESTION:
    Which companies and bank do I need to open ROTH IRA ?
    I posted a question before. I know I will choose Roth IRA.
    What banks or companies do I need to open the Roth?
    Bank of america, Citibank, hsbc, chase, fidelity have Roth.
    What is the difference between these banks about Roth IRA?
    Can somebody tell me which one I should choose and Why ?
    Thanks!

    • ANSWER:
      Stay away from banks and insurance companies for investments. Especially for ROTH IRA’s.

      I don’t have the time to write all the reasons…….. but take the time to learn about retirement investing.

      Consider (as your home for your ROTH IRA;
      Charles Schwab
      Fidelity Investments
      Vanguard
      T. Rowe Price
      and lastly… if you just won’t take the time to read a couple of books…. Edward Jones (Commissions involved, but much better than any bank or insurance company).

      Don’t let 20 years go by and realize how huge a mistake you made by going to a bank!

42. QUESTION:
    What is benefit of contributing to Roth IRA?
    What are the benefits of contributing to a Roth IRA if it is not tax deductible? I am 68 and participate in SEP at work so what if I just put ,000 into any kind of investment account and forget about the rules and regulations of an IRA since I’ll be retiring in the next 5-6 years?

    • ANSWER:
      When the day comes, and you begin taking out money from the Roth, all of it will be tax free.

43. QUESTION:
    What is the limit on the 2009 roth ira contribution?
    What is the limit on the 2009 roth ira contribution?

    • ANSWER:
      Depends on several factors:

      1) is your age. If you are under 50, then 00. Those over 50 can add an extra 00.

      2) it depends on your income level and tax filing status. In general, if you are single filing separate, and you make less than 1,000 then you can contribute the whole amount – and that phases out until 6,000, after which you have made too much to contribute. If you are married, filing jointly, the lower limit is 9,000 and the phaseout goes up to 9,000.

44. QUESTION:
    What is the best way for a dependent student to invest extra money? Can I establish a Roth IRA?
    I’m still in college and dependent on my parents, but I want to start investing. I want to be able to invest easily – i.e. transfer from my bank account regularly, but I don’t want to be socked with fees (like Sharebuilder). It seems like a Roth IRA is a good option, but I don’t know if I’m eligible to open one given that I’m a dependent.

    If tax barriers make it impossible for me to start investing, there’s really no incentive to earn extra money and invest it, or to spend more wisely and invest the money I save.

    10 points to the person who can give me the best insight into this problem.

    • ANSWER:
      The answer is yes, you can open ROTH IRA, if you have part-time job.

      you could open at http://www.scottrade.com with minimum 500 USD.

      and I give you my best advice. at age 32 , i amassed 62000 in 401k, 12k in roth IRA, and 30k in cash taxable account. I wish invest younger age like you. but I start invest at the age 25 with 401 k, I set aside 10-15% my gross, i contribute regularly on my ROTH IRA.

      Yes you could learn invest by yourself. it is your money, you should know how to do with it. for starter check this site out.

      http://www.pathtoinvesting.org/index_fla…

      http://www.stockcharts.com

      http://www.streettalklive.com>… university. a lot amount of information. It will serve you well
      I accumulate in good amount in 401k at the young age.I could share with you. when consider invest in stock market. you should consider basic 3 things:

      fundamental analysis==(economic data,finincial health, management, business model, competetion)>>what to buy

      technical analysis==(chart+indicator)>> when to buy

      Sentiment/schycho analysis==>>mood of investor, Contrarian point of view.
      Market cycle===>> check out book Trader Almanac by jeff hirsch will give you inside stuff
      When you combine 3 thing, It is one of the powerful knowledge goinh with you for the rest of your live

45. QUESTION:
    How much can i roll over to me Roth IRA?
    I make about 48k a year and have 20k in 401k. I want to roll it over to a Roth ira. I want to avoid bumping me into the next tax bracket. How much could i rollover for this tax year 2009 without going over to the next tax bracket? How much can i rollover next year? What is my tax bracket?

    I am filing single.

    • ANSWER:
      If the 401k is from your current employer, you probably cannot transfer it anywhere. You can only transfer or convert 401k assets from a “former” employer.

      If you are single you are probably in the 25% bracket anywhere from 48k to 68k, so it is not the tax rate that would matter much. What matters is how much tax money you can or are willing to come up with from sources other than your 401k each year when deciding how much to convert at a time.

      There is tax, but no penalty on the amount converted if you pay the tax with other money. But if tax is withheld from the conversion, that withholding would be subject to 10% penalty if under age 59.5. I am converting about ,000 per year from IRA to Roth IRA, but have the tax covered by a W-4 withholding adjustment (less allowances) and specifically tell my trustee not to withhold anything from conversions.

      But something to be aware of is that there is a special deal in 2010 only for anyone to convert tax deferred retirement funds to a Roth IRA and spread the tax over 2011 and 2012. So you might want to wait until 2010 to make the conversion to give you more time to pay the tax from other income instead of from the conversion.

46. QUESTION:
    what is the best company to start a roth ira in?
    i’m 19 and in the navy, looking to save some money for retirement the financial wizards here told me to look into a roth ira, sounds good, i just would like some input as to which company to go with.

    • ANSWER:
      There is no particular company that is consider the best. I open my Roth IRA through Primerica and only pay annual custodial fee on it, which is deducted from my investments. They have excellent customer service and are able to answer any questions. Plus you can view your account online as well to track the gains and price history and any activities such as capital gain distributions and dividends. Though, you can do this with any financial company. I just prefer Primerica because they offer other services too.

      Anyway, I currently have Legg Mason Partners Funds in my portfolio. I picked Aggressive Growth, Fundamental Value Fund, and Appreciation Fund. As you see, I stick with one company (Legg Mason) and not mix it with other companies like Van Kampen or Fidelity.

47. QUESTION:
    Is there a penalty for doing a white wash sales on Roth IRA account?
    I was going over my Roth IRA account and came across several white wash sales for tax year 2009 which I forgot to account. What is the tax consequence, if any?? What is the penalty and interest charge for each tax year that you have to redo 1040X. Please reply. Thanks. I like the Tax Lady comments.

    • ANSWER:
      If you bought and sold within the Roth, the wash sales are meaningless. The accounting for a Roth is when you take the money out.

      If you sold stock for a loss outside the Roth and bought the stock within the Roth, you *do* trigger the wash sale rules (can’t claim the loss), BUT you can’t add it to your basis in the Roth.

48. QUESTION:
    If I have a retirement plan at work , can I stil contribute to a roth ira -?
    I file married filing jointly – what is the income cut off for donating to a roth? Husband is self- employed and no retirement plan – he puts his in a traditional ira – what is his cut off

    • ANSWER:
      You can still contribute 00 to a Roth IRA (00 if over age 50) if your modified AGI is under 6,000.

      Your husband can also contribute 00 to a traditional IRA (00 if over age 50) and take a full deduction if your modified AGI is under 6,000.

      Phaseout provisions apply over this amount. (See worksheet 17-2 in IRS Publication 17 to compute your “Modified AGI”.)

49. QUESTION:
    Can someone please explain what a ROTH IRA is?
    I heard 401K’s & Roth IRA’s are the only 2 things the government does NOT consider when determining how much money i get for financial aide.

    How would i go about getting one? Is there a minimum balance? Do i need to be employed through a company to open one? Is there penalties? Please be as specific as possible. Thanks
    I am 20 years old, looking to start an emergency savings
    Or a retirement savings, whichever
    whats a money market account?

    • ANSWER:
      You need income of as much as you put in your ROTH. A ROTH is tax free retirement savings. You can take back any money you put in before retirement but not the growth without penalty and tax.
      Great idea to get one young and contribute every single year.
      You are allowed ,000 a year if you earn that much.

50. QUESTION:
    What is the deadline for 2006 Roth IRA Conversion?
    I would like to convert some of my traditional IRA into a Roth for the 2006 tax year. Was the deadline for this Dec. 31 or is it April 16?

    Thanks.

    • ANSWER:
      A conversion should have been done before January 1, 2007 in order to have it taxable in 2006.