10 Important Roth IRA Rules. Number 7 is a Shocker.

By now you should know that the Roth IRA is a pretty important component to any healthy financial plan for a young adult.

If you missed the reasons why you can watch this video, or read this post.

Now it’s time to learn the basic rules for the Roth IRA. I’ve pulled the most important points together so you won’t spend time on what you don’t need to know. But if for some reason, you want all of the Roth IRA rules, check out IRS Publication 590.

How Much Can I Contribute to My Roth IRA?

1) If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of $5,500 ($6,500 if you are age 50 or older), or your taxable compensation.
The contribution limits have the potential to change each year. In the last few years they have not changed, but you should double check if they have changed each year the new IRS rules are released.

When Can I Contribute to My Roth IRA?

2) You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year.
If you are contributing for the year 2014, you can contribute for 2014 even into April of 2015 when tax returns are due. This is a great way to catch up if you missed the opportunity to contribute.

What if I Want to Contribute More to My Roth IRA?

3) A 6% excise tax applies to any excess contribution to a Roth IRA.
Double check your contributions before the tax year ends. Request a withdrawal for any extra contributions you’ve made in order to avoid the excess contribution penalty.

Can I Change My Mind and Open a Roth IRA if I Already Have a Traditional IRA?

4) You can convert a traditional IRA to a Roth IRA. The conversion is treated as a rollover, regardless of the conversion method used.
In order to convert, you will have to pay taxes on the balance of the Traditional IRA. Those are ‘before-tax’ dollars and they have to be changed into ‘after-tax’ dollars.

Don’t worry.

The IRS will handle that little bit of magic for you.

10 Important Roth IRA Rules. Number 7 is a Shocker. | Young Finances

When Can I Withdraw from My Roth IRA?

5) You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA.

How Much Can I Withdraw from My Roth IRA?

6) Direct contributions to a Roth IRA (principal) may be withdrawn tax and penalty free at any time.
You are free to withdraw your contributions at any time. Even if you just opened your account last year or two years ago. No special forms needed. Just don’t withdraw earnings. Then the tax man cometh.

Is There a Way I Can Withdraw Roth IRA Earnings Penalty Free?

7) If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them.
If you withdraw contributions and earnings typically you are taxed, but if you take them in the same year you contributed, then it’s like the contributions never happened!

When Can I Withdraw All of My Money From My Roth IRA?

8) Generally, if you are under age 59½, you must pay a 10% additional tax on the distribution of any assets (money or other property) from your Roth IRA. Distributions before you are age 59½ are called early distributions.

Are There Any Exceptions? What if I Want to Buy My First Home?

8b) You may not have to pay the 10% additional tax if you are in one of the following situations.

  • You have reached age 59½.
  • You are totally and permanently disabled.
  • You are the beneficiary of a deceased IRA owner.
  • You use the distribution to buy, build, or rebuild a first home.
  • The distributions are part of a series of substantially equal payments.
  • You have unreimbursed medical expenses that are more than 10% of your adjusted gross income (defined earlier) for the year.
  • You are paying medical insurance premiums during a period of unemployment.
  • The distributions are not more than your qualified higher education expenses.
  • The distribution is due to an IRS levy of the qualified plan.
  • The distribution is a qualified reservist distribution.

How Long Can I Keep My Roth Account?

9) You are not required to take distributions from your Roth IRA at any age.
Want to leave your money in the account? You can do that. This rule works pretty nicely when you purchase an investment property inside of a Roth IRA.

What Happens to My Individual Retirement Account When I Die?

10) A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either inherited the other Roth IRA from the same decedent, or was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA.

Married and your spouse passes away? You can combine both Roth IRA accounts into one for the surviving spouse. A Roth IRA can also be passed down to a child as an inheritance. Now that’s how to begin building generational wealth.

And now you know the basics of the Roth IRA. Have you fallen in love yet?

Anything else you know or like about the Roth IRA?

This post is a part of a special Roth IRA series. See the other posts and videos by clicking over to The Ultimate Roth IRA Guide for Young Adults.

Originally posted 2014-08-13 06:30:43.


How to Open a Roth IRA Online with Betterment and Celebrate Like a Boss

I’ve been a Betterment customer for a few months now.

I found Betterment to be a great way for a beginner to invest because they have low fees and they make the process of investing as simple as opening an account and depositing funds.

When you open a account, you will deposit or set up recurring deposits from a checking or savings account. Then the folks at Betterment will invest on your behalf into ETFs based on your portfolio allocation.

Portfolio allocation just means where you want your money to go.

There are two options, stocks and bonds. You don’t have to do any research or constant monitoring of your portfolio.

They manage your everything for you.

You simply have to decide whether you want a low risk portfolio or high return portfolio.

I learned that Betterment offers IRAs, both Roth and Traditional.

I was pretty excited to have a professionally managed retirement account so I opened my IRA with Betterment.

Here is my personal experience with opening my Betterment account.

 How to Open a Roth IRA with Betterment

The first thing that I noticed is that it’s pretty easy to open an IRA. I have an existing account so I simply logged into my current account and started from there.

Here is a screen shot of my current account.

I started with a $250 deposit and I have contributed 25 dollars a month since opening my account in August.

It’s important to make a habit of automatic contributions and I have an auto-deposit that comes out each month for Betterment and one auto-deposit that goes into an FDIC insured savings account.

Even if you can only start with a few hundred bucks, at least get started.

The automatic plan makes saving and investing easy.

Start with Betterment here

I’ve allocated 55% to stocks which is lower than my peers but my goal is to beat the returns of a typical bond fund.

An increase of 3% is fine for me.

Step 1) Choose a New Roth IRA Retirement Savings Goal

In order to open the IRA, you have to click to expand the ‘total balance’ section.

This will show your current goals and give you the option to start a new goal, retirement savings.

After you choose the option to create a new goal/IRA, you will have a chance to choose what type of IRA you would like to open.

If you are not sure if you want a Traditional or Roth IRA, click the ‘Which type of IRA should I choose?‘ right above the IRA type selection.

As a registered investment advisor, Betterment can guide you through this choice.

Step 2) Choose Beneficiaries

After you select the type of IRA, you will be able to choose beneficiaries.

Not sure how to choose a beneficiary? Read this post on choosing a beneficiary.

Step 3) Fund Your New Roth IRA

Now you can choose how to fund your Roth IRA and celebrate!

That’s it!

Pretty simple huh?

Time to celebrate!

[panel style=”panel-primary” title=”Click to Tweet This” footer=””]I just opened a Roth IRA so I can retire like a boss.[/panel]

Click here to open a Betterment account today.

Did you open your Betterment IRA yet? What are your retirement goals?

Originally posted 2014-08-08 05:00:27.


How to Open a Betterment IRA and Invest Today

A Betterment IRA??

Imagine my excitement when I got this email in my inbox!, my financial advisor, is working on offering IRA’s!

This would definitely give me reason to move my Roth from where it currently is into Betterment. (I am a brand ambassador for Betterment and this is a partner link.)

Or at least I could open a new Betterment IRA and just split the contribution max.

Can I Open an IRA with Betterment?

If you are not familiar with an IRA, that is an Individual Retirement Account. It is a great way to save and invest for retirement.

There are two main types of IRAs, the Roth and the Traditional.

There are also IRAs for those that are self employed but we will just focus on the Traditional and the Roth.

Betterment Offers a Traditional IRA

An option to open a Betterment account as a traditional IRA would be appealing to many investors. I’ve already mentioned in my review of Betterment that I thought the only thing that they were lacking is an IRA option. A traditional IRA offers a way to shelter your current income from current taxes.

When you contribute to a traditional IRA, you do so with pre-tax income.

That means that if you’ve already paid taxes on the money, you will get a tax refund based on the amount of the contribution as long as it falls in the allowable parameters. TurboTax or your accountant can help you with this.

If you are an independent contractor and you are not paying taxes up front then you will not have to pay taxes on that income, at least for right now.

With a traditional IRA you pay taxes upon retirement at the point of withdrawal. And you pay taxes based on your tax rate at the time of withdrawal.

But what if you don’t want to pay taxes in the future, and you’d rather pay them now?

Betterment IRA for a Roth Account

A Roth IRA is also a possibility for you if you meet the requirements.

Everyone is not eligible to contribute to a Roth IRA.

There are certain income restrictions. I know that one day I will meet those income restrictions so I am contributing to a Roth today.

If Betterment does offer the option for a Roth IRA I will be opening one.

The benefit of a Roth IRA is that I do not have to pay taxes on my withdrawals when I retire, as long as I meet the qualifications. The rules could change so be sure to visit to get the details on that.

Some people who expect to be in a higher tax bracket at the time of retirement may opt for a Roth IRA.

The reason I prefer a Roth IRA to a Traditional IRA, is the fact that I do not have to pay taxes on the gains in a Roth IRA. Because I’ve already paid taxes on the initial contribution, everything else, interest, dividends, and capital gains are mine to keep, tax free.

Should I Keep my Personal Betterment Account?

So if I open a Betterment IRA, should I keep my personal Betterment account?

I plan to.

I like the personal account because I am using it as a travel fund and I plan to make contributions and deductions often.

There are penalties for withdrawing funds early from a retirement account so I know I will still use my personal account.

Click here to open an IRA with Betterment.

Should You Choose Traditional or Roth IRA?

Not sure which type of IRA is right for you? Use this tool.

Originally posted 2018-10-24 08:00:15.

Budgeting & Saving

How to File Your Taxes on the Cheap

Tax season is upon us and accountants are flooded with receipts. If you do your own taxes you are probably collecting all of your documents and W-2s so you can file soon. I recently read an article on Forbes about how to file your taxes on the cheap and it mentions the various computer-based programs that are available to you.

If your parents are still claiming you then you probably won’t be filing and claiming deductions, but it would still be good for you to start learning how to prepare your tax returns for once you do start to claim yourself.

How to Handle Investments

As an investor, you will need several statements when you begin to file your taxes. Your brokerage should give you a form that will summarize your buys and sells for that year. If you traded stocks in an IRA then you won’t get your final forms until after April since you have until April of the current year to contribute to your IRA for the present year.

How to Handle Business Income

If you began a business this year or worked as a 1099 employee then you will definitely need the help of a professional tax preparer to make sure that you get all of the deductions you are entitled to. I like to use, it pulls in all of my information from the previous year and guides me step by step through all of the deductions and credits I am entitled to. Even if you only worked at a pizza delivery boy, you may be able to deduct the cost of maintaining your car. Tax credits for each year are updated in the newest version of TurboTax.

Looking for more help? Visit The Ultimate Tax Guide for Young Adults to answer your tax questions.

For next tax year, begin saving all of your receipts and writing down your mileage and where you were going. You would be surprised at how many deductions apply to small businesses and 1099 independent contractors. See Pub 1799 for Independent Contractor and Pub 334 for Tax Guide for Small Business. If you decide to do your taxes on your own you should visit and research the forms you will need. They will mail you any IRS publications you will need free of charge.

How do you do your taxes? Do you use tax software or hire an accountant?

Originally posted 2015-01-31 06:00:00.