A number of personal-finance experts strongly recommend Roth individual retirement accounts (IRAs) because their tax benefits arrive just when you need them most - when you retire. Income to a traditional IRA are deductible in the tax year you make them, up to government-set limits. And although contributions to a Roth IRA aren't tax-deductible, the withdrawals in retirement will be tax free (again, subject to limits).
But Roth IRAs aren't for everybody. There are limits on income to be aware of as well.
For tax year 2011, your contributions to an IRA are limited to $5,000, unless you're over 50, in which case you can make an additional $1,000 IRA contribution. These amounts are reduced even further if your "modified adjusted gross income," as defined by the Internal Revenue Service, is above certain amounts. See the IRS table of Roth IRA contribution limits by income level and different filing categories for more information.
The financial planners we've interviewed are quick to point out that reaching your Roth IRA contribution limits doesn't mean you have to — or should — stop socking money away for retirement. That's true, they say, even if you also have a 401(k) retirement account at your place of work.
"Ultimately, you really want to have your 401(k), and you want to have some regular savings, and then you'd like to have a Roth," Georgia Bruggeman, a certified financial planner with Meridian Financial Advisors, LLC, in Holliston, Massachusetts, told Ally Bank in a recent interview. "Having your retirement income spread between these different piles of money...gives you the maximum flexibility to manage your tax bill," she said.
So if you don't have a retirement plan at work, you can contribute the maximum into a traditional IRA, regardless of your income. If Roth IRA contribution limits are too limiting, you still may be able to open a traditional IRA and save more for retirement in it. However, your total contributions to all IRAs can't exceed the overall limits of $5,000 annually, or $6,000 if you're over 50.
Ally Bank offers both Traditional and Roth IRAs, along with other savings options, including CDs, money market and online savings accounts — all with rates consistently among the most competitive in the country based on rates as published by Bankrate. Plus, you'll get the security that comes with knowing your money is insured by the Federal Deposit Insurance Corp. (FDIC) up to the maximum allowed by law.
You can find more information at Allybank.com, or by calling 877-247-ALLY (2559), where customer care representatives are available 24/7.