Roth IRA or Traditional IRA-Which is Best?

By John Huddleston

First, you should determine if you are qualified to contribute to either. You may contribute to either traditional or Roth IRAs only to the extent you have earned income includible in gross income. The maximum contribution for a taxpayer and the taxpayer’s spouse is $4,000 each.

Individuals who are at least age 50 will be able to make an additional contribution of $500 ($1,000 for 2006). You have until April 17th, 2006 to make an IRA contribution for the 2005 tax year. You must be less than age 70 ½ to purchase a traditional IRA.

In addition to the $4,000 limit mentioned above, contributions to traditional IRAs can be further limited when the individual (or spouse) is an active participant in a retirement plan maintained by an employer. The maximum deductible IRA contribution for an individual who is not an active participant, but whose spouse is an active participant, is phased out when modified adjusted gross income is between $150,000 and $160,000.

The maximum deduction for an individual who is an active participant in a retirement plan is phased out when modified adjusted gross income is between ($50,000 to $60,000 for single and head of household; $0 to $10,000 for married filing separate).

When both spouses are active participants in an employer sponsored retirement plan, tax deductible contributions are phased out when modified adjusted gross income is between $70,000 and $80,000. If your tax deduction is limited by the active participation rules, look to the Roth rules.

Roth IRAs are not subject to the active participation rules. However, contributions to Roth IRAs are phased out when income exceeds the thresholds. Contributions made by single filers are phased out when modified adjusted gross income is between $95,000 and $110,000, and for joint filers with modified adjusted gross income between $150,000 and $160,000, and for married filing separately with modified adjusted gross income between 0 and $10,000.

Roth and traditional IRAs also have different distribution rules, which goes beyond the scope of this article.

So if you qualify for both traditional and Roth, and you are not concerned with the different distribution rules, what is best?

With traditional IRAs, you get an immediate tax deduction. Tax on your contribution is deferred until final distribution. Also, all earnings inside your traditional IRA grow tax deferred. Roth IRAs offer no immediate deduction. However, all earnings inside your Roth IRA grow tax free, not tax deferred.

Therefore, you must consider what tax bracket you are in now and what tax bracket you will be in when you receive the distributions. If you are in the 10 or 15 percent tax brackets, Roth may be a good choice. Based on a $4,000 contribution, you are bypassing immediate tax reduction of $400 to $600 in exchange for a lifetime of tax free accumulation on your $4,000 investment.

This option looks even stronger if you expect to be in a higher tax bracket when you finally distribute your accumulation.

On the other hand, if you are in the 35 percent tax bracket, a Roth election means bypassing $1,400 immediate tax reduction (on a $4,000 contribution). If you expect to be in a lower tax bracket when you finally distribute your investment, as many retirees are, it makes sense to contribute to a traditional IRA and get an immediate tax break.

Tax accountant John Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Kent Everett area on various tax issues and provides tax preparation. Seattle Bellevue tax accountant John Huddleston is a frequent publisher of tax saving ideas.

Article Source: http://EzineArticles.com/?expert=John_Huddleston

High Yeild Investments: Home Mortgage Options Work - Tax Free

Banks Invest Your IRA Money in Home Mortgages, Shouldn't You?
By Bill Young

You can pump high yielding, tax free profits secured by real estate directly into your IRA!

I don’t care what your banker or stockbroker told you, the IRS says you can.
(http://www.irs.gov/publications/p590/index.html)

You can earn up to 25% on your mortgage loan investment in a couple of months on short term deals. Long term loans can triple your investment while generating a cool, passive income stream over 15 years or more.

You are probably aware that for every $100,000, in mortgage money you borrow you are going to repay nearly $300,000 by the time its paid off in 30 years, right? Wouldn’t it be nice to receive returns like that, instead of paying them?

You can!

The risks are extremely low on this type of investment. Banks will loan over 100% of the purchase price if the loan is secured by 1-4 family residential real estate. How much will they loan you on your stocks? H’mmm!

The collateral is a family’s home, the default rate is less than 1% and it is the most in-demand type of real estate there is.

If the homeowner stops paying, you take the property and sell it to recover your money.

Generally, there are two types of loans you would make, short term and long term.

Short term loans carry a higher risk as they are usually made to real estate investors, who buy, fix up and resell houses. They borrow the money to buy a property all cash to get the best possible price.

They would then either fix it up and sell it or just sell it if it were in good enough shape.

These loans are generally for a year or less and pay interest rates as high as 12% or more!

Your loan amount on this type of deal would usually be from $25,000-$250,000.

The long term, purchase money mortgages made to homeowners, would have smaller returns, just below the rates the banks are charging, because of the relative safety of the loan. Loan amounts would be from about $50,000 to $500,000. You could invest alone or in combination with those of other investors, forming your own private IRA Bank!

As the real estate market worsens, the easy bank mortgages will dry up, providing greater and greater demand for these private loans.

Think of the possibilities! You can rejuvenate your shriveled IRA, 401(k) or Keogh by stuffing it with secured, tax free real estate profits!

You can run a small, classified ad in your local paper or network with real estate agents and you’ll find clients.

In most states, you are allowed to make a small number of loans, before you have to think about licensing, but check the law in your state just to be safe.

Let your private, IRA Bank put you back on the road to early retirement!

Copyright 2005 Bill Young. Bill is a former bank mortgage officer. He is a real estate investor and personal financial consultant. You can learn more about earning high yielding, tax free returns secured by real estate in your IRA or other retirement fund here: http://IRAInvestorsExchange.Com
If someone you know is facing the foreclosure of their home and they want to save it, http://SaveMyHomeLLC.Com If they need to get rid of it quickly, http://WeTakeOverYourPayments.Com

Article Source: http://EzineArticles.com/?expert=Bill_Young

Finding Investment Funds

• Put your change in a dish every night and put it in savings once a month. By the end of the year, you will have an additional savings of $100.00 or more.
• Many utilities also offer home energy audits. For little or no money, a power company expert will walk through your home and identify ways to save energy and money. They may suggest you put caulk around your windows or turn down your hot water heater or add extra insulation to your attic or basement. Other common mistakes: letting cold air seep in from your garage and placing lamps near your thermostat, which then gives false readings.
• Once a week, put your coffee run money in an envelope, drink a glass of water instead, and save the money at the end of the year.
• If your lunch isn't for business purposes, carry a sandwich to work, take a salad, or even a frozen dinner, save the extra money at the end of the month and invest in one of those 'fast food places' your income will be more than your lunches next year.
• Save one trip a week in your car, and count the gas money toward savings. At the price of gas, that alone will be $250 a year.

Remember, money saved is money earned. Invest for your future.