Roth IRA - Tax Free Living

There are a number of ways to significantly reduce one's income tax bill, but only a few that a taxpayer can use to pay zero tax at all. The Roth IRA is one of those.

What Is A Roth IRA?

First the Roth Basics

Contribution limits for the Roth and the Traditional are the same. For 2011, you can contribute up to $5,000, plus an additional $1,000 if you are age 50 or older.

For Roth IRA’s, there are no Age Limitations. This point may affect highly paid people who continue to work into their 70’s, but it’s no big deal for 98% of the public.

This is the point everyone focuses on when deciding on a Roth vs. Traditional. Do you take the tax deduction now for the contribution and get taxed later (Traditional IRA)? Or eat the tax now and enjoy tax free withdrawals later on (Roth IRA)?

Being able to take tax free withdrawals under a Roth is a very big advantage in retirement.

2014 Roth IRA Income Limits – 2014

Filing Status	Full Contribution	Reduced Contribution
Single /Head of Household	Up to $114,000	$114,001 to $129,000
Married Filing Jointly	Up to $181,000	$181,001 to $191,000

Roth IRAs have no age limit or mandated distributions, so they make good estate planning vehicles.

The Roth IRA: Ultimate Retirement Plan

Use Working Years To Prepare For a Tax-Free Retirement

When a taxpayer believes his or her tax rate to be higher during retirement than it is today, he or she should make the contributions to the Roth IRA first. In today's economic climate, who knows what the tax rates will even be in 10, 20, 0r 30 years.

Tax Strategies for Roth IRA's

If a taxpayer's business start-up loses money, or he or she shows a loss or a small gain, due to equipment investment, or bonus depreciation convert as much IRA money as possible into a Roth account. Offsetting a $30,000 loss with a $30,000 IRA conversion, and not paying tax on that balance or its earnings when it is withdrawn during retirement years.

Smart Ways To Avoid Taxes On Conversions

Convert IRA plan balances over time: any opportunity that one has to pay only 10%, 15%, or e3ven 20% tax, it may be a good idea to do so. Roth IRA's are a brilliant way to escape future tax increases.

A taxpayer can own and hold a rental property inside a Self-Directed Roth IRA. A taxpayer can invest just about anything in a Roth. Buying a property in the current down market, and earning rental income and capital appreciation tax-free over a number of years, and leaving that property to your children tax-free. That's a great alternative worth considering.

Finding out after a hard-working career that your social security benefits can become taxable when the amounts withdrawn from an IRA or 401K plan is a miserable feeling. That feeling can be avoided if a taxpayer accumulates as much as possible within a Roth IRA.

A taxpayer's heirs and beneficiaries pay no income tax on their inherited share of a Roth IRA. This is a big advantage. When a taxpayer leaves behind a $1 million Roth IRA, the heirs keep the entire $1 million.

Roth IRA Investments

Roth IRA for Children

The Roth IRA Tax Rules For Heirs

Last Updated April 26, 2015