Reap the Rewards of Roth IRAs

As you prepare your 2000 tax return, are you thinking of contributing to a regular IRA? A Roth IRA may be an attractive alternative. Like regular IRAS, Roth IRAs:

• Permit contributions for 2000 until April 16, 2001.
• Also permit contributions now for 2001.
• Have a maximum contribution of $2,000 for each tax year.
• Require earned income in order to permit contributions.
• Allow married couples with one earned income of at least $4,000 to make
• Two contributions of $2,000 apiece.
• Shelter investment income from tax.

However, Roth IRAs are always non-deductible so there is no upfront tax break. So why contribute? Because money taken from a Roth IRA may be completely tax-free. All Roth IRA withdrawals will be tax-free after a five-year holding period, as long as you are at least age 59-1/2.

The catch? You can’t make a Roth IRA contribution if your income is over $160,000 on a joint return. Between $150,000 and $160,000 of income, the $2,000 contribution limit phases out. For single filers, the phase-out range is between $95,000 and $110,000 in income.