Thanks a lot for the fast and apt response Atlanta Tax Expert!

But, when you say Roth IRA is funded by money after taxes and a ceiling of 150K(should I be making more than that in a financial year?) and traditional IRA is pre-tax..

Do you mean, Traditional IRA account is funded from money before my employer sends out a pay stub?

How will I be able to fund this traditional IRA account with out asking my employer to put money from my pay into this before applying taxes and sending me a pay stub for each pay period?

Is it possible to open both accounts?

So that if I need to take out money for say AUTO/HOME loan after 5 years, I can take from the Roth IRA(how much fee/tax will I be paying,if I have 20,000 after 5 years , as I think 4000 is the limit on yearly deposit to a ROTH IRA, and would like to withdraw all of that)
And be left with 20000 in the IRA which I wouldn't be touching until I turn 60?

I'm really novice in these matters and would appreciate your patience!

Thanks a lot!

-envy

Quote:

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Originally Posted by AtlantaTaxExpert

-Envy:

You may open an IRA (Roth or traditional) with absolutely NO employer input, as long as your income qualifies you (Roth has a $150K ceiling).

Because the Roth IRA is funded with after-tax money, after five years, you can access it anytime you want with virtually no penalties.

The traditional IRA is a different story! It has all kinds of restrictions and a 10% Early Withdrawal Penalty that is real punitive in nature. Withdrawing at age 59.5 is basically the BEST way to handle a traditional IRA.

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-Envy:

Pre-tax money means you can deduct the contribution to a traditional IRA on your federal tax return as an adjustment to income, up to $5,000 per year.

After-tax money means you CANNOT deduct the contribution to a Roth IRA, but the Roth IRA grows tax-free (where a traditional IRA grows tax-deferred). Further, I was not clear on the income limit, which is $160,000 for a person filing jointly with spouse, or $110,000 for someone who is single.

After five years, you can basically withdraw whatever you want from the Roth IRA with ZERO tax consequences. With a traditional IRA, any withdrawal is taxed (both BOTH the IRS and the state in which your reside if that state has an income tax) PLUS there is that 10% Early Withdrawal Penalty.

The amount that can be contributed each year is $5,000 MAX. You can open BOTH types of IRA, but the total funding limit is $5,000 for the combined accounts.

The employer IS NOT INVOLVED with either a traditional or Roth IRA. You set up and fund the accounts all by yourself!

Contact me at [email protected] if you want further details. If you want to discuss it over the phone, e-mail me your phone number.