Question: What is a Roth IRA?
Answer: A Roth IRA, named after the late Delaware Senator William V. Roth, Jr., is an Individual Retirement Account that allows contributors to make contributions to the account with after tax assets without incurring more tax penalties and the restrictions on withdrawals from a Roth IRA are less than those on a traditional IRA.
Question: What are the advantages of opening a Roth IRA?
Answer: The Roth IRA allows the owner to contribute into the account funds that are earned and have already been taxed. All dividends, interest, capital gains income applied to the Roth IRA account is tax free.
Question: If we are married, how does a Roth IRA effect us concerning our contributions to the account?
Answer: The Roth IRA is set up so there are set limits on contributions, and in cases of married individuals, both spouses may contribute up to those limits individually.
Question: Can I withdraw from my Roth IRA account to purchase a home without being penalized?
Answer: Yes. A participant in a Roth IRA can withdraw up to $10,000.00 without penalty, if the money is used to purchase a home to use as a principal place of residence.
Question: Are there other benefits of a Roth IRA?
Answer: Yes. The tax advantages of the Roth IRA is it's main benefit. The owner of a Roth IRA may withdraw up to the total of the converted amounts of contributions without incurring a tax penalty. There are no distribution requirements based on age and earnings withdrawals automatically qualify when the contributor reaches age 59 1/2 or older, or if the contributor is disabled.
Question: Are there disadvantages of a Roth IRA?
Answer: The disadvantages of a Roth IRA are that contributions to the account are not tax deductible and there are penalties for the early withdrawal of earnings and they are taxed by the IRS.
Question: If the contributor dies before all the money is withdrawn from the Roth IRA account, what happens to the tax advantages?
Answer: The contributor must live until their contributions are totally withdrawn in order to fully realize the tax advantages. If the contributor dies, the only benefit the Roth IRA will have is reducing the contributors estate that may not have been subject to taxation anyway.
Question: Where do I go to set up a Roth IRA account?
Answer: Roth IRA accounts are usually set up at a bank or other institution.
Question: Who can I talk to about setting up a Roth IRA account?
Answer: Talk with your accountant, tax consultant, or a tax attorney before attempting to set up any type of IRA because there are tax issues that may have consequences that will effect you in one way or another.