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A Roth IRA is a nonqualified account. All deposits that are made to a Roth IRA are made with after-tax dollars. The same contribution limits apply for a Roth IRA. An individual may contribute the lesser of 100 percent of earned income, to a maximum of $5,500 per person or $11,000 per couple. Any contribution made to a Roth IRA reduces the amount that may be deposited in a traditional IRA and vice versa. All contributions deposited in a Roth IRA are allowed to grow tax-deferred, and all of the growth may be taken out of the account tax-free, provided that the individual has reached age 59 1/2 and the assets have been in the account for at least five years. A 10 percent penalty tax will be charged on any withdrawal of earnings prior to age 59 1/2 unless the owner is purchasing a home, has become disabled, or has died. There are no requirements for an individual to take distributions from a Roth IRA by a certain age.

The following table details contribution limits that have been in place for both traditional and Roth IRA contributions for the last several years:


Age 49 & Below

Age 50 & Above











Individuals and couples who are eligible to open a Roth IRA may convert their traditional IRA to a Roth IRA. The investor will have to pay income taxes on the amount converted but will not be subject to the 10percent penalty.


A simplified employee pension (SEP) IRA is used by small corporations and self-employed individuals to plan for retirement. A SEP IRA is attractive to small employers because it allows them to set up a retirement plan for their employees rather quickly and inexpensively. The contribution limit for a SEP IRA far exceeds that of traditional IRAs. The contribution limit is the lesser of 25 percent of the employee's compensation or $51,000 per year. Should the employee wish to make their annual IRA contribution to their SEP IRA, they may do so, or they may make their standard contribution to a traditional or Roth IRA.

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