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For those who don’t know, a ROTH IRA is similar to the traditional IRA except that you don’t get a tax savings now, but your savings/investment grows tax free and can be withdrawn tax free in your retirement years.

Here’s some basic Roth IRA rules:

1. The annual contribution limit for 2009 has stayed at $5000.  However, if you’re over 50 you can contribute $6000 to help “catch up” your retirement.  If you’re not over 50 please don’t plan on using the “catch up” to make a difference in your retirement.  It doesn’t help much.
2. If you’re single and make (AGI) between $105k and $120k your maximum contribution is lower than $5000.  Over $120k and no IRA for you.  For joint filers your phaseout range is between 166k and 176k.
3. You can withdraw any money you’ve invested without paying penalties or taxes on it anytime.  You can not withdraw money you’ve earned in the account until the appropriate retirement age.  This is nice if you know you should be saving for retirement, but you’re still worried you don’t have the money to spare.  This is bad because you may be tempted to remove the investment when you don’t really need to.
4. You must be 59.5 years old and have held the IRA for 5 years to withdraw without penalty.
5. There are all types of conversion rules to change your traditional IRA to a ROTH IRA.

OK, that’s the basics of it.  I know I left step 5 pretty vague, but I believe it’s also the most interesting.  Why has the federal government made it easier to change your traditional IRA to a ROTH?  My hunch is they would rather have your tax money now than later.  If you pay your taxes now that’s guaranteed revenue for the government now.  Then if things are bad 10, 20, 30 years down the road, they might be forced to tag on some taxes on all the ROTH IRA money later.  Besides, how many people in this country will honestly be hurt by it?  It could be sold as a penalty for the few to help the many.

Republican or Democrat I prefer the lower risk approach, which in the IRA case I believe is take your tax break now!

I’m just not sold that the ROTH IRA Rules.

Related posts:

1. Roth IRA Rules and Rates
2. Roth IRA Basic Advice
3. Stocks and Shares
4. 401K Loans – Worth the Risk?
5. 401K Rollovers (Gimme My Money Back)