Focal Point Financial: Roth IRAs

The Roth IRA Plan

The Roth IRA plan features a "pay now - never pay later" design. Taxes are already paid on the money placed in a Roth. At retirement there is no tax on the money taken out. Thus, all of the growth is tax-free.

There are basically two types of Roth IRA's. Both grow tax free, withdrawals are tax free, and there are no withdrawal requirements after age 59 1/2.

Contribution Roth: The Contribution Roth IRA is for annual, after-tax (non-deductible) contributions. It must be from earned income. Those earning over $110,000 (single)** and $160,000 (married)** can NOT contribute to a Roth. These contributions are linked to the IRA limit of $2,000 per person per year*. If you contribute to a Regular IRA, that counts against your Roth contribution. You can NOT contribute $2,000* to both IRA's! The Contribution Roth is an after-tax investment that becomes a tax-free savings account. Unique to the Contribution Roth is that (as the law reads now) you can withdraw your original principal (the annual contribution) at any time. This is tax free (taxes were already paid on the contribution) and penalty free. The earnings must remain for a minimum of five years. There are special early withdrawal options on the earnings after the five year window.
Conversion Roth: This is an entirely new piece to the IRA puzzle. Persons and households with modified adjusted gross incomes under $100,000** may convert a previous IRA (regular, rollover and non-deductible IRA's) into a Conversion Roth. This shifts the old IRA from tax-deferred (pay taxes when you withdraw) to being taxed now but NO taxes later! This option is not advantageous for everyone. Those nearing retirement may find that paying the taxes now is more onerous than waiting a few years and paying the taxes (after retirement) at a lower tax rate. The major advantage is for younger workers who are at a lower tax rate now and have longer for investment to grow tax-free. After a minimum of five years and certain other requirements, Conversion Roth funds are available tax-free for special purposes.

*	Increased to $3000/yr. beginning 2002 through 2004; $3500 if 50 or older. Increases to $4000 /yr. beginning 2005; $4500 if 50 or older. Increases to $4000 /yr. beginning 2006 through 2007; $5000 if 50 or older.
**	These income limits will also be periodically adjusted for inflation.

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Focal Point Financial Services
2214-5th St., Suite 1
White Bear Lake, MN, 55110
(651) 426-7375 or 1-888-426-7373
Fax (651) 426-6004

dale@focalpointfinancial.com

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NOTE: Dale Hedstrand is a registered principal associated with AIG Financial Advisors, Inc., Member NASD/SIPC. Before proceeding further, please be advised that Dale Hedstrand is licensed to discuss with or offer investment and financial services and products only to residents of AL, AZ, CA, FL, ID, MD, MI, MN, MO, NH, NM, ND, OH, OK, OR, SC, SD, TX, UT, VA, WA, WI, WY. Securities related services may not be provided to individuals residing in any state not listed above. The information offered is for informative purposes only. None of this information is to be construed as an offer to buy or sell securities referred to within or otherwise. Neither Dale Hedstrand nor AIG Financial Advisors, Inc makes any guarantee as to the accuracy or completeness of this information.

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