Roth IRA contributions, unlike those in a traditional IRA, don’t provide you with a deduction at tax time. Therefore, there’s no hurry to invest in your Roth IRA before the tax deadline; you are free to open a Roth and start investing whenever you want, if you qualify. However, each tax year there is a maximum amount you may contribute to a Roth, so if you want to make a contribution for last year, make sure to do it before April 15th.
Contributing After Tax Time
If you do open a Roth IRA after filing your taxes, you’ll be making contributions for the current tax year. For example, if you filed your 2010 taxes in April of 2011 and opened a Roth in May 2011, your Roth contribution will count towards the 2011 tax year. As of the time of publication, there is a cap on how much you may contribute to a Roth. If you are under 50 years old, you may contribute up to $5,000 to a Roth IRA as of the time of publication (given that your income was at least $5,000). If you are over 50, you may contribute $6,000.
Roth IRA Qualifications
Before you can open a Roth IRA, you must meet certain work and income guidelines. First, you must earn income from work -- meaning if your only source of income is from things like gifts, government benefits or pensions, you cannot invest in a Roth. Also, as of the time of publication, to invest in a Roth your income must be under $122,000 if you are single, or $179,000 or less if you are married filing jointly or as head of household.
Unlike a traditional IRA, you may still contribute to a Roth after you reach 70 years old. You may also withdraw your contributions (not your returns, however) from your Roth at any age without paying a penalty fee. Inversely, you don’t have to start making withdrawals at a certain age. Instead, you can leave the money untouched as long as you’d like. You needn’t worry about paying taxes on money you withdraw from your Roth in retirement, either: because you funded your Roth with after-tax dollars, you won’t be taxed on the money a second time.
Where to Invest
If you’re ready to contribute to a Roth IRA, there are different ways to go about it. You may open one at your bank, a brokerage or a mutual fund company. If you don’t have much experience investing, Cameron Huddleston of Kiplinger recommends opting for a mutual fund, which will invest your money for you into a variety of stocks. If you’re more experienced, you may hand-pick stocks yourself by opening a Roth IRA through a brokerage.
- CNN Money: Ultimate Guide to Retirement: What Are the Advantages of the Roth Version?
- CNN Money; Where Should I Open an IRA?; Walter Updegrave; March 2004
- IRS.gov; Publication 590 -- Individual Retirement Arrangements
- "Kiplinger"; Open Your First IRA; Cameron Huddleston; February 2007
- IRS.gov; 2011 IRA Contribution and Deduction Limits; November 2010