Like other retirement plans, a Roth individual retirement account allows you to put aside money each year to save for retirement, and can be funded through automatic deductions. If you decide that you don't want to add money to the Roth IRA in a given year, you may cancel the contribution at any time.
What Makes a Roth IRA Different?
Unlike many retirement accounts, which are funded with pre-tax earnings or can be deducted on your tax return, a Roth IRA must be funded with money that has been taxed. Though this may seem like a disadvantage as far as saving money for retirement, a Roth IRA does have its advantages. Since taxes have already been taken out on the contributions, you do not have to pay taxes on the money when you take it out. You also don't have to pay tax on any interest that you earn on the money in the Roth IRA.
Eligibility for Roth IRA
Many people who earn money through work, whether through an employer or through self-employment, may contribute money to a Roth IRA. Those people who have earnings of more than $122,000 per year, however, are ineligible to set up a Roth IRA as a savings plan as of the time of publication, with earnings for a Roth IRA being determined by the modified adjusted gross income on the individual's tax return.
Setting Up Contributions
You can set a Roth IRA up through most banks and financial institutions. When setting up your account, you can elect to link a checking account to the Roth IRA and have a pre-determined amount of money automatically deducted from the account on a regular basis. The schedule for your deductions are up to you, but you cannot contribute more than $5000 to the Roth IRA in any given tax year.
The method to cancel a Roth IRA contribution for the year varies from financial institution to financial institution, but can often be cancelled through your online account with the company. When you log into your online account and click on your Roth IRA, you will generally find a button or link to cancel upcoming contributions. If you do not see this link anywhere on the page, click on the FAQ on the page or contact the financial institution through the contact link.
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