A Roth IRA is a tax-favored retirement instrument that can be established by an individual investor. It is one of the most common and flexible retirement vehicles available. What's more, under current tax laws, more people can take advantage of the benefits of this type of plan.

Contribution Limits
Contributions to a Roth IRA may be made in one or more payments throughout the year. You can contribute up to $4,000¹ a year if you meet one of the following requirements:

• Your adjusted gross income is below $160,000, if you’re married and file a joint return² or
• Your adjusted gross income is below $110,000, if you’re filing an individual return².
• In addition, in 2006 and 2007, if you are age 50, or older, you may contribute an additional $1,000 to your Roth IRA.

Benefits of a Roth IRA
When you invest in a Roth IRA, you receive considerable benefits, including:

• Tax-free withdrawals — You’ll pay no taxes on distributions as long as your Roth IRA has been openat least five years and you have reached age 59-1/2.
• Tax-free earnings — Your Roth IRA earnings will accumulate tax-free. This means that the power of compounding is put to full use in your retirement plan.
• No age limit for contributions³ — A Roth IRA allows you to contribute past age 70-1/2 — and there is no requirement for mandatory distributions during your lifetime.
• Penalty-free withdrawals for home purchases — You may withdraw up to $10,000 from your Roth IRA during your lifetime to help pay for a primary residence for yourself, your parents, grandparents, spouse, child or grandchild. This withdrawal is usually allowed if the home purchaser hasn’t owned a primary residence for the past two years.

When you consider these and other features of the Roth IRA, you’ll realize that it has some unique advantages over other retirement savings vehicles.

Converting from a Traditional IRA to a Roth IRA
If you already have a traditional IRA, you may be interested in converting it to a Roth IRA. Converting may make sense under the following conditions:

• Your adjusted gross income is below $100,000 — whether you’re married and file a joint return or single and file an individual return.
• You have enough non-IRA savings to pay the taxes — You’ll have to pay taxes on your deductible IRA if you plan on converting it to a Roth IRA. If you can use non-IRA assets to pay these taxes, the conversion can be a good idea, but if you have to cash out part of your old IRA, the switch might not be worth it. Plus, the amount withdrawn to pay the taxes may be subject to a 10% penalty.
• You are years away from retirement — If you’re ten or more years away from retirement, you may come out ahead by converting to a Roth IRA. That’s because the advantages of tax-free distributions, offered by the Roth IRA, will start to outweigh the cost of taxes today for moving the money out of your traditional IRA.
• You believe you may be in the same tax bracket, or a higher one, in retirement — When you own a traditional deductible IRA, you’ll be taxed at your marginal tax bracket when you withdraw your money. That could work to your favor — if your tax bracket falls during retirement. But if you think your tax bracket will stay the same, or perhaps even rise, then you may well come out ahead by converting to a Roth.

To convert to a Roth IRA, your adjusted gross income must be less than $100,000.

Roth IRA Fund Vehicles
You can fund your Roth IRA with virtually any type of investment, including mutual funds, common stocks, corporate and government bonds, annuities and more.

The investments you select will depend on your individual needs, your tolerance for risk and your time horizon — how long you have until retirement.

Tamarack does not provide tax or legal advice. Please consult your financial advisor or tax advisor for more detailed information, or for advice regarding your individual situation.