There is something that you can’t ignore, and that is the power of a Roth IRA. For many years taxpayers had to meet certain income limitations to be able to qualify for a Roth contribution. A Roth IRA is an after tax contribution to an individual retirement account. You do not receive a tax deduction for this contribution; however this account is the best retirement option that is available today. With a Roth IRA, your contribution grows tax free, just like a Traditional IRA, the difference is that if you leave the money in the Roth for more than five years, you can distribute the funds to yourself tax free.
There are income limitations with a Roth IRA that only allowed certain individuals to make contributions. For example, in 2013 married couples filing jointly can make a Roth IRA contribution if their adjusted gross income is $178,000.00 - $188,000.00. For single and head of household the income limitation is $112,000.00 to $127,000.00. These contribution limitations closed the option of contributing to a Roth for a lot of taxpayers, however higher income individuals can still contribute to a Roth IRA through their 401(k) plan at work.
Something that is relatively new with 401(k) plans is a Roth 401(k). There are no income limitations with a Roth 401(k), and you can contribute up to $17,500.00 in 2013 to the plan. Individuals 50 or over can add an additional $5,500.00 to that contribution for a total of $23,000.00. Unlike a traditional 401(k) contribution, these contributions are made after tax, but the same rules that apply to Roth IRAs apply to Roth 401(k)s.
Not all 401(k) plans have a Roth option, so check with your plan advisor. If you don’t need the tax deduction, you should really consider contributing to a Roth 401(k).
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses, The Ultimate Real Estate Investor Tax Guide, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax, The Complete Guide to the Affordable Care Act’s Tax Provisions, The Complete Guide to Retirement Plans for Small Businesses, The Complete Guide to Estate, Gift and Trust Taxation, The Complete Guide to Hiring an Accountant, The Complete Guide to Subchapter S-Corporations,, and Free Money. All available exclusively on Kindle
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