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Featured Advisor

Ed Meek
CEO/Investment Advisor

Edge Portfolio Management


State: IL

At Edge, a low client to advisor ratio allows for personal and customized service for each individual.  Our goal is to work as a team for each client to provide not only portfolio management but wealth coordination and financial planning.  We make every effort to have frequent communication with our clients and to provide timely response to calls and emails.  I also enjoy spending time with my wife and three kids, playing and following basketball, playing golf, and participating as an advisory board member for Breakthrough Urban Ministries.

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Understanding Roth IRA Rules

There are a variety of different ways that one can save for future retirement, one of which is the popular IRA. The IRA, or Individual Retirement Account, was created in 1974 as a result of the Employee Retirement Income Security Act (ERISA). The primary reason for the popularity of the IRA is that it allows money that is invested in the account to grow tax deferred. This means that money that would have normally had to go for state and federal taxes can instead stay in the account and continue to accumulate. 

There are several different types of IRAs to choose from depending on the individual situation of the investor and their specific financial goals. The most common choices are traditional IRAs and Roth IRAs. 

Difference between a traditional IRA and a Roth IRA:

A traditional IRA allows the account holder to contribute up to $5,500 (USD) every year. If the account holder is over the age of 50 years they can contribute even more money per year, up to $6,500 (USD). Any amount that is contributed to a traditional IRA can be deducted from the total of yearly income, meaning that the individual will not be taxed for that money and that year's taxable income will be reduced. 

Withdrawing money from a traditional IRA create a tax liability on the amount withdrawn as if it were regular income. In addition, if the money is withdrawn before the account holder reaches the age of 59-1/2, there is an additional 10 percent penalty payable. However, if the money is withdrawn and applied toward the purchase of a home or toward the cost of college education, then the 10 percent penalty is waived, though the income tax must still be paid. 

The Roth IRA was created to specifically help middle-class Americans by giving them even more flexibility for withdrawing and using the invested funds. Though deposits are not tax-deductible, the housing and education benefits seen with a traditional IRA are also present with a Roth IRA. In addition, Roth IRAs allow withdrawal of funds at any time with no penalty and no tax to be paid. Interest earned is subject to taxing for a period of five years, after which both the contributions to the account and the earned interest may be withdrawn without tax or penalty. 

Rules of a Roth IRA:

Roth IRAs are a particularly flexible way to invest for the future as well as providing a reliable source of money if needed along the way. Before investing in a Roth IRA it is important to understand Roth IRA rules

The maximum amount that may be contributed to an account is $5,500; this increases to $6,500 if the account holder is age 50 or over. Any contributions over these amounts will result in a fine on the excess amount, and payments must be made to the account before the yearly tax deadline. 

An individual must also meet certain qualifications in order to contribute to a Roth IRA: they must have actual earned income; if their tax-filing status is "single", and they earn more than $95,000 per year, contributions to the account may be restricted; if the individual is married and files a joint tax return, then their contribution may be limited if the combined household income is over $150,000.