Can I Get a Roth IRA by Putting in So Much a Month?

by Cindy Quarters

A Roth individual retirement arrangement (IRA), is a type of retirement account that has some distinctive characteristics that set it apart from other IRAs. A Roth IRA is often established as a second way to save for retirement, in additional to either a 401k plan, a traditional IRA or some other type of retirements savings plan. Virtually any of these retirement plans can be funded by lump sums or by regular monthly contributions, and all have different tax ramifications.

Limits

A Roth IRA has contribution limits based on the investor's age at the time of the contribution. This varies from year to year. For example, the limit as of the time of publication for a Roth IRA is $5,000. The amount increases to $6,000 if the investor is aged 50 or older. Only a person who earns an income or who is married to someone who earns an income can have a Roth IRA. Also, this type of account is limited to people who meet certain earnings requirements. As of the time of publication, only single people who earn less than $107,000 per year or couples who make under $169,000 annually can have a Roth IRA.

Investment Types

A Roth IRA offers the account holder many different ways to invest her money, including stocks, bonds, real estate and mutual funds. This has a lot of appeal for people who want to diversify their investments in order to increase yields and minimize risk. Money in a Roth IRA can be invested in some or all of the different ways, depending on the specific financial institution that is holding the money.

Funding

A Roth IRA can be funded with a single lump sum payment, several large payments, or a regular monthly contribution. The monthly amount works well for many people because it allows them to figure their savings into their regular budget. The monthly amount can be set up so that the amount is automatically put into the IRA on a specific day each month. It is important that the investor be certain he can manage without the money that is being placed into the retirement account, since in most cases there are substantial penalties for withdrawing funds early.

Tax Benefits

Funds contributed to a Roth IRA are not tax exempt, but once the funds are in the account they will grow tax-free. When the account owner reaches the age of 59 1/2, she is able to take money from the account without paying any taxes on it, as long as she meets all criteria. In general, the money must be left in the account for at least five years before it is used and is then withdrawn because the account owner has reached 59 1/2, is buying her first home, has died or has become disabled.