There are various types of IRAs to invest in for the future and the Roth IRA is just one of them. There are distinctions between the Roth IRA and others which is why some people choose to put money into this particular type.
Traditional vs. Roth IRAs
There are sets of rules for any IRA but the Roth IRA is slightly more lenient in some aspects. This type allows the person to start contributing funds at any age. The only requirement for contributing is that the person has some form of income or compensation. This compensation can be in the form of a wage or salary, fees, bonuses or tips. Since there is no age requirement and only an income requirement, unlike the traditional IRA, more people have an opportunity to invest for their future.
Limitations
There are limitations on the Roth IRA in terms of how much a person can contribute but there are also limits on how much an income a person is permitted to make while still contributing. These limits change depending on the individual circumstances. These may not be a concern for most people, but for those with higher incomes, they may want to look for another plan.
Income Limits
The income limits for the Roth IRA are also called compensation limits and refer to the adjusted gross income of the individual. This pertains to the income that is filed on the tax forms in the run of one calendar year. If the income of the individual is more than what is stated as the limit then they are not eligible to contribute. The new income limits have been set for 2011 and may provide some higher earners with a little good news.
Single Filers
The single filer heading pertains to single individuals, the head of the household, or those that are married but filing as a separate contributor while not living with the spouse during the year. The new income limits for the maximum earnings allowed before the cutoff of eligibility for 2011 is $107,000. This has increased by $2,000 since 2010. Anyone earning lower than this amount can make a full contribution of $5,000. Individuals who turn 50 years old by the end of the year can contribute $6,000.
Contributions are phased out after the $107,000 mark and there are no contributions permitted if the individual earns over $122,000.
Joint Filers
Individuals who are filing income jointly have modified rules for 2011 also. The amount permitted to earn before being phased out has jumped to $169,000. The maximum amount that individuals can contribute while earning less than this amount is $5,000 unless they turn 50 years of age by the end of the year. In this case, the maximum contribution is $6,000.
The phase out of contributions starts at $169,000 and the maximum amounts vary before being cut off at $179,000.
Single Filer Living with Spouse
The third category available for filers is for those that are married and living with their spouse, but still wish to file separately. In this case, a person cannot make a Roth IRA contribution unless their adjusted gross income is less than $10,000.
If the amount of earnings is above zero but below $10,000, their contribution is based on the Roth IRA guidelines appropriate to their situation. In the case that they don’t have an income, they can contribute the full amount of $5,000. For individuals who turn 50 before the end of the year, they are permitted to contribute $6,000.
Choosing between IRAs
Although the Roth IRA has some distinct advantages, for some individuals, the income limits of 2011 might hinder them. Investments for the future are very important as is making the right one. Anyone who is interested in finding such an investment is advised to have a look at their earnings and their financial situation before choosing the route they wish to follow.