Roth IRA

Opening a Roth IRA is very straightforward. Typically, IRA companies that offer traditional IRAs will likewise offer Roth IRAs. Here is what you will need to open a Roth IRA:

The Roth IRA is named after Senator William Roth, and was introduced through the Taxpayer Relief Act of 1997. This retirement account was first referred to as an “IRA Plus”.

A Roth IRA is an individual retirement account, which is funded with after-tax dollars and permits tax-free withdrawals.

As per the 2020 Internal Revenue Agency (IRS) rules for contribution limits to a Roth IRA, “total contributions cannot exceed $6,000 ($7,000 for individuals 50 years old or older), or cannot exceed your taxable compensation for the year, if your compensation was less than this dollar limit”.

The IRS regulations state that if you are over 59 ½, and have owned your Roth IRA for at least five years, funds can be withdrawn without taxation.

Conversely, for individuals who are under 59 ½, and have not owned the Roth IRA for at least five years, funds will be taxed and subject to a 10% early-withdrawal penalty tax.

However, the IRS does recognize exceptions to this penalty, which includes extenuating circumstances like the birth of a child, or buying a home for the first time.

You can contribute to a Roth IRA up until the tax-filing deadline for the next year.

Anyone can open a Roth IRA, as long as the individual has earned income.

The IRS has not imposed any age restrictions on opening a Roth IRA.

Basically, a Roth IRA basis is the total contributions that have been made to the retirement account. The Roth IRA basis can be determined by adding all contributions made to the Roth, then subtracting any previous withdrawals from the account.

It is crucial to understand that if you do choose to rollover a 401k to a Roth IRA, the funds that you rollover will be taxed. It is also important to note that some 401k plans do not permit rollovers.

The first step is to select a reputable IRA custodian who will ask for identifying questions such as date of birth and Social Security Number to open your new Roth IRA account. Then, request that your 401k administrator put the funds into the Roth IRA. Next, you are now able to choose which investments you want in the Roth IRA.

The major downside to a Roth IRA is that you cannot contribute to one if you make too much money, based on filing status and modified adjusted gross income (MAGI) as outlined by the IRS.

Single individuals with an income of $139,000 or more cannot contribute to a direct Roth IRA. Married individuals filing separately from a spouse with a MAGI of $10,000 or more, are likewise ineligible for this type of retirement account. Couples filing jointly with a MAGI of $206,000 or more, are not permitted to contribute to a Roth IRA.

Modified AGI stands for “modified adjusted gross income” is used by the IRS to determine contribution eligibility to a Roth IRA, and the dollar amount that contribution will be. Essentially, if your modified AGI exceeds the limit outlined by the IRS, then you are ineligible for contributions to this type of retirement account.

For 2020, the IRS increased the modified AGI limit for a Roth IRA. The phase-out range for singles or heads of households is $139,000 or more. Married couples who file together, the phase-out range is $206,000. Lastly, the income phase-out range is $10,000 or more, for individuals who are married but separately filing from their spouses.

There is no limit to the number of Roth IRAs that you can have. However, as per the 2020 IRS rules for contribution limits to a Roth IRA, “total contributions cannot exceed $6,000 ($7,000 for individuals 50 years old or older), or cannot exceed your taxable compensation for the year, if your compensation was less than this dollar limit”.

The IRS has established strict contribution limits for a Roth IRA, based on your modified AGI.

For 2020, the phase-out range for singles or heads of households is between $124,000 to $139,000. Married couples who file together, the phase-out range is $196,000 to $206,000. Lastly, the income phase-out range is $10,000 or less, for individuals who are married but separately filing from their spouses.

Excess Roth IRA contributions are when you exceeded the total contributions limit outlined by the IRS, or your annual modified AGI exceeded the limit to qualify. As per IRS rules, a 6% “excise tax” is levied on excess contributions, and a specific formula has been provided to calculate those earnings.

Although similar in many respects, there are some differences between a traditional IRA and a Roth IRA. Contributions to a traditional IRA are not taxed and have tax-deferred growth. Conversely, contributions to a Roth IRA are made with after-tax dollars and distributions are not subject to taxation.

There are numerous investment options offered by a Roth IRA. However, it is important to understand that you can be limited by both IRS regulations and your respective IRA custodian. Below are the types of investments available to you with a Roth IRA:

Roth IRAs have plenty of investment options but can be limited by the IRA custodian and IRS rules. These are the types of investments that a standard IRA owner should be able to invest in:

It is crucial to note that as per IRS rules, a Roth IRA cannot be used to invest in physical gold bullion (or any other approved precious metal). The easiest method to invest in gold with a Roth IRA is to buy a mutual fund that includes mining company stocks, or invest outright in the stocks of gold mining companies. This investment strategy is known as purchasing “paper gold.” Mining ETFs and gold ETFs are also available, which provide indirect exposure to the precious metal.

Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.

The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.

It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA – their intentions will be dubious.

A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.

It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.

This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.

Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.

The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.

If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.

In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.