3 Things You Didn’t Know About Your ROTH IRA for 2013

Written by Sam on . Posted in Education, Inspiration, Retirement. 3506 views.

A Roth IRA is an IRS approved retirement account which allows participants to deposit after-tax money into an account that will grow tax-free.  Once the participate reaches the age of 59 1/2, they may withdraw all funds (contributions and earnings) tax-free.  The potential downside of this account is the early withdrawal penalty of 10% if the funds are taken out before the age of 59 1/2.  Despite this downside, there are several tricks & tips that make participating in a Roth IRA a lot more appealing.

Here are 3 things that most potential participants don’t realize about a Roth IRA:

  1. Withdraw Contributions Anytime.  That’s right, one of the advantages of a Roth over a Traditional IRA is that no matter how old you are, you can always withdraw your contributions, penalty and tax free!  Keep in mind that this does not apply to your earnings (returns made off of your contributions).  Because of this, several investment advisers suggest funding a Roth as your “emergency account” – as you’ll get the long term tax benefits while being able to withdraw the contributions at any time.
  2. Short-term Loan.  Also known as a “Tax-free Rollover”, you can withdraw funds (contributions and earnings) from your Roth IRA as long as you put it back within 60 days.  You’re allowed to do this once every 12 months.
  3. Qualified Withdrawals.  The IRS allows several instances where qualified withdrawls may be made before age 59 1/2.  These include:
  • First-time home purchases, subject to a lifetime limit of $10,000 in pre-tax dollars.
  • Higher educational expenses for you and your immediate family.
  • If you’re disabled.
  • If you use the funds to pay unreimbursed medical expenses in excess of 7.5 percent of your adjusted gross income (AGI).
  • To pay health insurance premiums for yourself, your spouse, or your dependents if you’re unemployed for at least 12 weeks.
  • If you elect to receive your funds on a regular distribution schedule, which the IRS calls “substantially equal periodic payments.”

Interested in contributing to a Roth IRA for 2013 (or 2012 before 04/15/2013)? Here are the latest eligibility requirements for 2013:

If your filing status is… And your modified AGI is… Then you can contribute…
married filing jointly or qualifying widow(er)

 < $178,000

 up to the limit

 > $178,000 but < $188,000

 a reduced amount

 >  $188,000

 zero

married filing separately and you lived with your spouse at any time during the year

 < $10,000

 a reduced amount

 > $10,000

 zero

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

 < $112,000

 up to the limit

 > $112,000 but < $127,000

 a reduced amount

 > $127,000

 zero

There are several other advantages to participating in a Roth IRA.  What are some holdbacks that you’re facing?  Are there any other advantages you’d like to share?  Please feel free to express yourself in the comments section below.

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