A Roth IRA Overview

After searching the web for a brief description of the advantages, disadvantages and rules of a Roth IRA, I thought I’d add mine to the mix:
Advantages

• You can contribute to your Roth IRA after age 70 1/2, unlike the age limitation of a traditional IRA.
• You can contribute up to $4,000.00 for 2007 if you’re under age 50 and up to $5,000.00 if your 50 or older.
• You can contribute to a Roth IRA even if you contribute to your employer’s retirement plan.
• You can withdraw what you’ve contributed to the Roth IRA tax-free but not what you’ve earned.
• You can withdraw tax-free for first time home buyers.
• Withdrawals are tax-free upon death or disability.
• There is no Required Minimum Distribution (or Minimum Distribution).

Disadvantages

• Withdrawals in excess of what you’ve contributed are fully taxable and ar also subject to a 10% penalty.
• Contributions are limited each year for each individual.

Rules

• You need earned income.
• Single folks can only make up to $95,000.00
• Couples can only make up to $150,000.00.

Read All About It

But for our purposes we don’t care about the disadvantages. We want the freedom of picking where we hold our Roth IRA – Charles Schwab, TD Ameritrade, etc. We also want the freedom of picking tons of investment vehicles, for example Mutual Funds, under our Roth IRA.

Feel free to read the ever popular 107-page IRS Publication 590 for the rules. Kind of drab reading but it’s all there.

Idea: Some people forgo an online savings account and use a Roth IRA as kind of a savings account. However, for our purposes here, we want to use the Roth IRA for retirement reasons.