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Roth IRA

A Roth IRA may be an attractive option for you if your income exceeds the limits for deducting contributions to a traditional, tax-deductible IRA. Qualified distributions from a Roth IRA are tax-free if certain conditions are met.

As of 2010, if your Adjusted Gross Income (AGI) is below $167,000, married filing jointly; $105,000 for single filers, you are eligible to contribute up to $5,000 to a Roth IRA. If you are age 50 or older, you may be able to contribute an additional $1,000 each year. Married couples who file separately and have an AGI of $10,000 or more are not eligible to contribute to a Roth IRA.

Unlike a traditional IRA, your contributions to a Roth IRA are not tax deductible. However, a Roth IRA provides for tax-free qualified distributions after five years of investment under the following circumstances:

• You are at least 59½ 

• You need to be reimbursed for certain health insurance premiums

• Death or disability

• You have made a qualified first-time home purchase: This is restricted to the purchase of a home by anyone who has not owned a principal residence for the previous two years. However, maximum lifetime cumulative withdrawals for home purchases cannot exceed $10,000. 

Unlike traditional IRAs, Roth IRAs are not subject to lifetime minimum distribution rules. This means you can leave your money in a Roth IRA as long as you live and continue to reap the benefits of tax-deferred growth — even after age 70½. Also, a Roth IRA allows you to contribute to your account after age 70½ if you have earned income.