Roth IRAs is an individual retirement plan that allows 2013 annual contributions up to $5,500 and an addition $1,000 if you’re age 50 and older. Roth IRAs are NOT deductible, but they do accumulate tax deferred and distributions are tax free.
A roth retirement plan is a plan that receives non-income deducted contributions. These non-income deducted contribution grow tax free and can be withdrawn from the plan without an income tax implication as long as the plan has been in force, or an individual has been a member of the plan for at least five years.
Additionally, roth retirement plans use a first-in first-out (FIFO) distribution. This means that one can withdraw their basis from the plan before they must withdraw any gain.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
To encourage people to prepare for retirement, individual retirement (IRA) accounts were allowed by congress. These plans allowed a participant to reduce their current income tax by the amount of the contribution to an IRA. The entire amount of the proceeds upon retirement is then taxable as ordinary income. A Roth plan approaches the same issue in the opposite way. It doesn’t allow a current deduction for contributions to the plan, however, at retirement the entire amount in the plan, which includes all the interest earned, is paid to the participant without any income tax. There are limitations in contributions and you should consult with an accountant.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
There are several types of “Roth” plans. The common characteristic is that the contributions to the plan are made with after tax dollars. That means that there isn’t a current tax deduction for the contribution. However, the money deposited and the earnings in the plan can be withdrawn in retirement without paying income tax. These plans are particularly attractive.
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Additionally, roth retirement plans use a first-in first-out (FIFO) distribution. This means that one can withdraw their basis from the plan before they must withdraw any gain.