The Roth IRA, named after Senator William V Roth, Jr, has been available since 1998. The Roth IRA permits tax-free withdrawals but contributions are made with after tax dollars. While both the Roth and Traditional IRA’s offer tax-deferred earnings, with a Traditional IRA you must pay income tax on any earnings withdrawn from the account. In other words, you must pay tax now on any contributions to a ROTH IRA (which results in tax-free withdrawals after 59 1/2) as opposed to investing in a Traditional IRA with pretax dollars (which results in taxed distributions after age 59 1/2).

As the average age upon death continues to increase for both males and females, it is also interesting to note that contributions to a Traditional IRA must stop after age 70 1/2 and you must also start taking withdrawals from a Traditional IRA after age 70 1/2. Neither of these rules applies to the Roth IRA.

You are eligible to make the maximum contribution of $2000 to a Roth IRA if your adjusted gross income is not more than $95,000 for singles and $150,000 for couples filing jointly. You can convert all or part of an existing IRA to a Roth IRA if your adjusted gross income is not more than $100,000, single or married. You will owe the tax on any monies converted from a Traditional IRA to a Roth IRA, but you won’t be subjected to the usual 10% penalty for early withdrawals. And if you convert during 1998, you can report the withdrawal as income spread out over the next four years, to reduce the immediate tax burden. Please note: This will only be allowed for 1998 conversions.

The younger you are, the more sense it makes to convert to a Roth IRA, because your investment will compound tax-free for a longer period of time. However, we have also found that even older clients will benefit from a conversion to the Roth IRA, if they can afford to continue letting it earn tax-free, because they will not be forced to withdraw it after age 70 1/2.

The Roth IRA also offers the extra benefit of penalty-free withdrawals for first-time homebuyers and higher education expenses. You still must pay regular income taxes on the taxable portion withdrawn, but there will not be an additional penalty. This feature is unique to the Roth IRA and is not available with the Traditional IRA. Other tax law changes during 1997 include:

    • Married couples may now contribute up to $4000 per year but not more than $2000 per person, even if the spouse is a homemaker.
    • If you are unemployed for at least 12 consecutive weeks, you may take a penalty-free distribution to cover the cost of health insurance for you and your family. You may take the distribution in the same year or following year of your unemployment.


Financial security during your Retirement is probably your most important investment goal. We would be happy provide you with a comparison of your Traditional IRA earnings vs Roth IRA earnings, upon request (send us email at or call 1-800-511-8763 ext 28).

One final thought- we have discussed the Roth IRA with many accountants, financial advisors, investment counselors, etc…and researched it to the best of our ability. We feel confident, that set up the way it exists today, the Roth IRA is probably an excellent choice for the majority of our customers. However, the Roth IRA is the result of political action within Congress, and there is no guarantee that future changes in our political landscape (i.e.- future Presidential elections) might not result in more changes or reduced benefits to the Roth IRA.