The following calculations can help evaluate financial need to protect your family considering expenses, debt and how to mitigate the risk by carefully planning the life insurance and investments.
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| Roth IRA | Taxable account | |
|---|---|---|
| Balance | $0.00 | $0.00 |
| Total Principal | $0.00 | $0.00 |
| Total Interest | $0.00 | $0.00 |
| Total Tax | $0.00 | $0.00 |
| Roth IRA | Taxable Account | |||
|---|---|---|---|---|
| Age | Start | End | Start | End |
A Roth IRA is a type of Individual Retirement Arrangement (IRA) that provides tax-free growth and tax-free income in retirement. The major difference between Roth IRAs and traditional IRAs is that contributions to the former are not tax-deductible, and contributions (not earnings) may be withdrawn tax-free at any time without penalty. Roth IRA was first introduced and established by the Taxpayer Relief Act of 1997 and is named after Senator William Roth.
Roth IRA accounts can be opened at many different institutions, from the largest, most well-known financial companies, to online-only investment companies and financial service firms. The IRS regulates all of these institutions, and all of them must meet certain requirements, but each can still have its own differentiating perks.
1.Made using after-tax dollars.
2.Not tax-deductible. However, there is a tax credit, the Saver's Tax Credit, on IRS Form 8880 that can be claimed for up to 50% on the first $2,000 in contributions.
3.Contributions can be withdrawn tax-free at any time without penalty. However, earnings withdrawn may be subject to tax and/or penalty if withdrawn before the account holder is 59½ years old or if the account is less than five years old.
4.People with incomes above certain thresholds cannot qualify to make Roth IRA contributions. For the 2024 tax year, the threshold is anything above an adjusted gross income of $161,000 (up from $153,000 in 2023) for those filing as single or head-of-household. For those who are married and filing jointly, the amount is increased to an adjusted gross income of $240,000 (up from $228,000 in 2023). Furthermore, to qualify to make Roth IRA contributions, filers must have earned income (i.e. wages, tips, bonuses, self-employment income) in the year contributions are made.
5.The contribution limit in 2024 for those aged 49 and below is $7,000. For those aged 50 and above, the limit is $8,000.
6.Unlike fixed annuities, variable annuities pay out a fluctuating amount based on the investment performance of assets (usually mutual funds) in an annuity. This type of annuity allows the most flexibility in terms of where investments can go, such as large-cap stocks, foreign stocks, bonds, and money market instruments. As a result, this type of annuity requires that an investor spend some time managing these investments. It is important to note that variable annuities do not guarantee the return of principal. Because the funds are invested in assets that fluctuate in value, it is possible for the total value of assets in a variable annuity to be lower than the principal. Investors who cannot take on this risk are probably better off with a fixed annuity. Keep in mind that variable annuities have some of the highest fees in the financial industry.
7.Contributions for a given tax year can be made to a Roth IRA up until taxes are filed in April of the next year.
Choosing between an immediate or deferred annuity is just as important as choosing between a fixed or variable annuity.
1.Direct contributions can be withdrawn tax-free and penalty-free anytime.
2.Concerning Roth IRAs five years or older, tax-free and penalty-free withdrawal on earnings can occur after the age of 59 ½.
3.Withdrawals on earnings from Roth IRAs that are less than five years old are subject to both taxes and penalties. However, given a number of situations (listed below), it is possible to avoid a penalty, but not the taxes, on accounts less than five years old as long as any one (or more) of the conditions below is met. For accounts older than five years old, these same conditions apply and result in a tax only if none of the conditions are met, or neither a tax nor a penalty if any one of the conditions is met.