Thursday, November 22, 2012

2013 ROTH IRA Contribution Limits Increased

Contribution limits for IRAs and ROTH IRAs will be $5500 next year!  As long as you earn less than $112,000 (single & head of household) or $178,000 (couples) this is the new limit for the ROTH.  My earned income is nowhere close to these lofty numbers meaning I easily qualify.  Qualification criteria is slightly different for traditional IRAs.

I'm going with the ROTH option because capital gains & dividends compound tax free plus it's easier to access money before 59.5.  You can withdraw contributions any time, penalty free, which will work out perfectly for my situation.  In retirement I plan to only spend dividends and interest, while leaving principle intact.

8 comments:

  1. Great news. What was your source for this information?

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    Replies
    1. IRS website:
      http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

      This was actually released about a month ago. It's just that I wasn't looking for it.

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  2. I'm glad they raised the contribution limit as well. It'll give me a chance to add more on a after-tax and never to be taxed again basis. Like you I'm planning on leaving the principal in tact and only living of the dividends. Great news for all investors.

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    Replies
    1. Indeed! I think a ROTH IRA is a great option for those who plan to retire early, but not super early.

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  3. To many folks get carried away with the tax excempt provision in the tax code cencerning roth IRA'S. If and when the amount of money in roth IRA accounts reaches into the trillions the tax man is going to be looking for his cut.

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    Replies
    1. That's a possible scenario. I find it unlikely that they will all the sudden start taxing ROTH withdrawals. While we don't know what will happen in the future, I'm not going to let doomsday scenarios affect my actions since they are unlikely and we'd be screwed if it happened whether you had a ROTH or not. It's best to utilize what is available to us. ROTH IRAs don't make sense for everybody, but it does for my situation.

      So far I have recieved $1,289.37 dividends plus $482.14 capital gains in my ROTH this year. I will pay $0 taxes on it.

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