Early Withdrawal of IRA| 401K |Retirement Plans

An ideal way to save towards your retirement is through getting a Roth IRA (Individual Retirement Account) or a 401K Plan used by both large and small businesses. Once you have set up your IRA then you can start making payments into it. But there are certain items that you should be aware of.

Firstly you are actually limited as to how much you can contribute towards an IRA in each financial year. It is currently no more than $4,000 or 100% of your earned income, depending on which is the lesser. However, if you are over the age of 50 your contribution limit to this type of IRA is $4,500. Plus there is no limit regarding age and a person is able to contribute at any age. You need to be aware that these differ from the 401K contribution limits.

For you to be able to contribute to your Roth IRA you need to have an income which is taxable and at any one time your adjusted gross income should be less than $110,000 for an individual or $160,000 for a couple who file joint returns. However, for couples who file their own separate returns this figure goes down to $100,000.

You need to be aware that your Roth IRA contributions will be reduced when you are actually contributing towards a traditional IRA as well. So if you are making contributions to both a Roth and Traditional IRA these should not exceed the total amount of contributions you are allowed to make in any given year. But with a Roth IRA the contributions you make on these will be reduced if your income goes above a certain limit.

However there is another method you can use for contributing towards a Roth IRA known as the conversion method. This allows you to convert your traditional IRA over to Roth one. To do this you need to take the IRA out of one account and within 60 days of getting the funds immediately transfer it into your Roth IRA account. Although all Roth IRA contributions are taxable you should be aware that any withdrawals or distribution of the funds are not.

When it comes to making your contributions to your Roth IRA you can do so at any time of year. However, you must make sure you do so before the due date for your tax return in a year not including any extensions offered. As they are not tax deductible then the Roth IRA contributions should not be reported on your tax returns.

Carrying out some research and you will soon see how important a Roth IRA can be to you having a more stable financial retirement because they are tax free when distributed. As part of your retirement planning one should be considering the importance of taking out a Roth IRA.

Above we have provided you with details regarding Roth IRA contributions and what things you need to be aware. It is also advisable that you discuss the matter with your financial adviser as they can help to ensure that you select the right one that will ensure that your retirement is a much happier one as well as being a more financially sound investment as well.