Roth Ira

You can make a Roth IRA as an alternative to the traditional IRA. The contributions you make to fund the Roth IRA are nondeductible. When you withdraw your funds, all the interest, dividends and appreciation that accumulate in your Roth IRA cannot be subject to the federal income taxation provided that you meet the specific requirements and you comply with the annual contribution limits such as those specified in the 2006 Roth IRA limits.

Your modified adjusted gross income (AGI) for Roth IRA purposes can affect the 2006 Roth IRA limits on maximum contributions that you can make. These limits will also be dependent on other factors such as your taxable compensation and your filing status.

If you have taxable compensation and your filing status is married filing jointly or as a qualifying widow(er), and your modified AGI is less than $150,000, your 2006 Roth IRA limits for contribution is $4,000 or $5,000 (if you are at least 50 years old). However, if your modified AGI is $150,000 but less than $160,000, your 2006 Roth IRA limits with respect the contribution can be reduced accordingly. For those with modified AGI that is at least $160,000, you are not qualified to contribute to the Roth IRA.

If you are married filing separately with your spouse, but you lived with your spouse at any time of during the year, and you do have an income, then you are still qualified to the 2006 Roth IRA limits of either $4,000 or $5,000 depending on the age. If you have an income of less than $100,000, the amount you can contribute is reduced. And should you be earning at least $100,000, you do not have a 2006 Roth IRA limits because you can never contribute to the Roth IRA.

For those who have taxable income and are still single, or head of the household, or married filing separately and did not live with your spouse at any time during the year, and your modified AGI is less than $95,000, your 2006 Roth IRA limits on contributions could be either $4,000 or $5,000 depending on your age. If you have a modified AGI of at least $95,000 but less than $110,000, your 2006 Roth IRA limit is subject to the phase-out provisions and thus proportionately reduced. Those who have at least $110,000 modified AGI are not allowed to contribute to a Roth IRA.

If your contributions are less than the 2006 Roth IRA limits, you may not make up the difference in your contributions after the due date on your 2006 tax return. However, if your contributions exceed the 2006 Roth IRA limits, you can apply the excess contribution in 2006 to 2007 if the contributions for 2007 turn out to be below the maximum contribution you will be for that period. Be aware, though that a penalty or some form of excise tax may apply on the excess (which normally would have been subject to income tax).