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Roth IRA  Retirement Planning

More than 20 million U.S. households owned a Roth IRA in 2012.

Roth IRA owners can look forward to a time when their qualified withdrawals will be tax-free, regardless of how much growth the account experiences (under current tax law). A qualified withdrawal is one that meets the five-year holding requirement and takes place after age 59½ or results from the owner’s death or disability. A Roth IRA can be a flexible way to save for retirement as well as other needs. Because contributions are made on an after-tax basis, they can be withdrawn without penalty at any time, for any reason.

There are a few handy exceptions to the 10% penalty for early withdrawals. For example, a distribution may be penalty-free if used to purchase a first home ($10,000 lifetime maximum), pay qualified higher-education expenses, or pay unreimbursed medical expenses that exceed 10% of adjusted gross income (7.5% AGI for individuals aged 65 and older through 2016). You can make IRA contributions for the previous tax year up to the April 15 tax filing deadline. The maximum annual contribution to all IRAs combined in 2013 and 2014 is $5,500 ($6,500 for those 50 and older). You must have earned income to contribute to an IRA. Eligibility to contribute to a Roth IRA phases out at higher modified AGI levels: $114,000 to $129,000 for single filers and $181,000 to $191,000 for married couples filing jointly in 2014.

Source: Investment Company Institute, 2013

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