Find out if you're eligible for a Roth IRA.
Money Girl
230 MG How to Get a Roth IRA?
Hey, Fidelity, what's it cost to invest with the Fidelity app? Start with as little as one dollar with no account fees or trade commissions on US stocks and ETFs. Hmm, that's music to my ears. I can only talk. Investing involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Sell or assessment fee not included. A limited number of ETFs are subject to a transaction-based service via $100. See full list at Fidelity.com/commissions. Fidelity brokerage services LLC member NYSE SIPC. This episode is brought to you by AARP. Ten years from today, Lisa Schneider will trade in her office job to become the leader of a pack of dogs. As the owner of her own dog rescue, that is, a second act made possible by the reskilling courses Lisa's taking now with AARP to help make sure her income lives as long as she does. And she can finally run with the big dogs and the small dogs who just think they're big dogs. That's why the younger you are, the more you need AARP. Learn more at AARP.org/skills. Hi everyone, you're listening to the Money Girl podcast, and I'm Laura Adams. Here's a question that I received on the Money Girl voicemail line. Hi, I'm calling from Maryland. I recently had to go part time in my job, and my husband makes close to $200,000 a year. My question, should I now start an individual retirement account? People were telling me to do a Roth IRA, and I understand the reasons why, but I also understand that we make too much money, I believe, to contribute to a Roth IRA. Thank you. A Roth IRA can be a great way to save her retirement. If you're not sure what a Roth or a traditional IRA is, be sure to listen to podcast number 173, called "What is the difference between a traditional and Roth IRA?" It's in the Money Girl section at quickanddirtytips.com. The call are alluded to income restrictions on who can contribute to a Roth IRA, and she's right about that. The first step to getting a Roth IRA is to make sure that you're eligible to contribute to one. When you're modified, adjusted gross income or magi for the tax year is within a certain range, the total amount you can contribute to a Roth IRA is reduced or phased out. And if your income exceeds the allowable range, you're not allowed to make a Roth IRA contribution. However, if your income drops below the IRS's allowable limit in the future, you can start making Roth contributions to the same account again. Here are the Roth IRA income limits by tax filing status for 2011. If you file taxes as single, head of household, or married filing separately, and you did not live with your spouse during the year, then your phase-out range is $107,000 to $122,000, which means that you can't make a Roth IRA contribution if your magi or modified adjusted gross income is $122,000 or more. Now, if you're married and filed jointly, your phase-out range is $169,000 to $179,000, which means that neither spouse can make a Roth IRA contribution if your magi as a couple is $179,000 or more. And if you're married filing separately and you did live with your spouse during the year, there's no phase-out range, but you can't make a Roth IRA contribution if your magi is $10,000 or more. If the caller files taxes jointly with her husband, who she said earns close to $200,000 per year, then his income alone would probably make them ineligible to contribute to a Roth IRA. As I mentioned, the threshold for joint filers is $179,000 for 2011. However, she could invest in a traditional IRA instead. To figure out your magi, you can use the worksheet in IRS publication 590 or get help from a financial advisor or tax accountant. A Roth IRA comes with lots of benefits. I'm going to give you five major reasons why a Roth IRA might be a good choice for you. This episode is brought to you by AARP. Ten years from today, Lisa Schneider will trade in her office job to become the leader of a pack of dogs as the owner of her own dog rescue that is. A second act made possible by the reskilling courses Lisa's taking now with AARP to help make sure her income lives as long as she does. And she can finally run with the big dogs and the small dogs who just think they're big dogs. That's why the younger you are, the more you need AARP. Learn more at aarp.org/skills. We wear our work day by day, stitch by stitch. At Dickies, we believe work is what we're made of. So whether you're gearing up for a new project or looking to add some tried and true workware to your collection, remember that Dickies has been standing the test of time for a reason. Their workware isn't just about looking good. It's about performing under pressure and lasting through the toughest jobs. Head over to Dickies.com and use the promo code Workware20 at checkout to save 20% on your purchase. It's the perfect time to experience the quality and reliability that has made Dickies a trusted name for over a century. Ryan Reynolds here for Mint Mobile. With the price of just about everything going up during inflation, we thought we'd bring our prices down. So to help us, we brought in a reverse auctioneer, which is apparently a thing. Mint Mobile unlimited premium wireless. Have it to get 30, 30, get 30, get 30, get 20, 20, get 20, get 20, get 20, get 20, get 15, 15, 15, 15, just 15 bucks a month. So give it a try at mintmobile.com/switch. $45 up from payment equivalent to $15 per month. New customers on first three month plan only. Taxes and fees extra. Speed slower above 40 gigabyte CD tail. Okay, here are the five major reasons to consider using a Roth IRA to save for your future. Number one, tax-free retirement income. Contributions to a Roth IRA are made from post-tax income and are not subject to additional tax when you take withdrawals. If your account mushrooms in value over many years, all those earnings are never taxed and that saves you a bundle. Though you don't get a tax break in the current year like you do with a traditional IRA, the long-term tax savings of a Roth could be much higher. Number two, penalty-free withdrawals. Since you pay tax upfront on contributions to a Roth IRA, you can also withdraw money at any time without penalty. However, withdrawing your earnings on the account before age 59 and a half typically triggers a 10% early withdrawal penalty. Though the purpose of an IRA is to save for retirement, having this flexibility means you could get to your money in a pinch. Number three, no required minimum distributions. With a Roth IRA, the IRS doesn't require you to take withdrawals during retirement, like with a traditional IRA. You can continue making contributions to a Roth during retirement or leave it to your heirs. Number four, reduce taxes. If you're just starting your career, it's likely that your income is lower now than it will be when you retire. If you believe that your tax bracket is lower today than it will be in the future, then taking a smaller tax hit on Roth IRA contributions in the current year can save you money in the long run. And the fifth major benefit of a Roth IRA is no conflict with workplace accounts. You can participate in a retirement plan at work and contribute the maximum amount to a Roth IRA. For 2011, you can sock away up to $5,000 or up to $6,000 if you're age 50 or older. To learn more about contributing to both a workplace retirement plan and a traditional IRA, be sure to listen to show number 216 called should you contribute to both a 401k and an IRA. Signing up for a Roth IRA is easy. I recommend that you use an online mutual fund company or a brokerage firm. As you compare companies, consider these features, the types of investments available, account maintenance fees, trading fees, fund expense ratios, required minimum balances, and the personalized service from investment professionals. The beauty of an IRA is that you're in control and can invest the money in just about anything. If you want to own individual stocks, check out brokerage firms like etrade.com, scottrade.com, and sharebuilder.com. They also offer a full range of investments like bonds, exchange traded funds, and mutual funds. They typically don't require a minimum balance to open up an IRA. If you want to own mutual funds, consider popular low-cost fund families like Fidelity, Vanguard, and Schwab. These offer a wide range of their own branded mutual funds and exchange traded funds in addition to stocks, bonds, and CDs. They typically require a minimum investment like $1,000 or $2,500, but will waive it if you set up automatic monthly transfers to your IRA of $100 or $200. If you have a retirement plan at work like a 401(k) or a 403(b) that offers matching funds, that's where I recommend you save for retirement first. Those matching funds are just too good to pass up, so always contribute at least enough to max out what your employer will give you for free. But if you're like the caller and don't have a workplace retirement plan or you're a great saver and max it out, taking advantage of an IRA is a smart way to secure your financial future. On the Money Girl page at quickanddirtytips.com, you'll find links to everything I've mentioned in the show in addition to all kinds of good stuff, like the free Money Girl newsletter, how to connect with me on social media, and where to email your money question. Most people get the show through iTunes, so if you're not already subscribed to the podcast there, it's free, easy, and the most convenient way to get each new weekly episode. And if you enjoy the show, I'd really appreciate it if you'd leave a quick review on iTunes. You can also leave your money question on the Money Girl voicemail line at 206-333-1610. If you like these tips, you'll love my award-winning new book Money Girl Smart Moves to Grow Rich. It tells you what you need to know about money without bogging you down with what you don't. It's available at your favorite bookstore in print, or as an e-book, for your Kindle, Nook, iPad, PC, Mac, or smartphone, or even giving away two free chapters at smartmovestogrowrich.com. I'm glad you're listening. To change. That's all for now, courtesy of Money Girl, your guide to her richer life. Kendra manages your payroll. She's also six weeks pregnant. Maybe it's time for a group dental plan with extra TLC for moms to be. Green from within. United Concordia Dental. Learn more at grinwithucd.com products under written by United Concordia Insurance Company. H5N1 bird flu is spreading in some animals. If you work with poultry, dairy cows, wild animals, or with raw, unpasteurized milk, wear protective gear, and take precautions. cdc.gov/birdflu. A message from CDC. [BLANK_AUDIO]