It’s been awhile since I’ve talked about the Roth IRA and there are some important points to remember. If you’re a newer reader, you may want to go back and read Answering a Reader’s Question, Best of the Roth IRA, and Starting My Roth IRA. The options are plentiful when you’re looking into setting up a Roth IRA, but the benefits are pretty much the same no matter where you choose to set it up. I choose to have my Roth IRA with Scottrade because of all the options it offers me, but you may choose to go with another provider. Do whatever works for you.

For this year (tax year 2007) the maximum contribution limit is $4,000, and it will increase to $5,000 for 2008. After that, the limit will supposedly adjust in $500 increments in line with inflation. I say supposedly because as we know (or should know), the government can (and does) mess with it however they choose.

Not everyone is eligible however to contribute to the Roth IRA based on income. For single tax filers, the income limit is $99,000. Your allowable contribution amount will then phase out up to $114,000 where you no longer may contribute to a Roth. For joint filers, the limits are $156,000 to $166,000. If you happen to be above these income limits, I wouldn’t feel too sorry for yourself. There are plenty of other options available to you.

Another aspect of these types of accounts that many people are not aware of is that you can access a portion of the funds for qualified expenses. If you’re looking to save up for a down payment on a house, you’re allowed to withdraw up to $10,000 in earnings for such a purpose. Notice I said “earnings” here. At any time you’re allowed to withdraw an amount up to your actual paid in contributions because it was after tax money. For a new home purchase, you’re also allowed to access additional funds. Also, even though it’s called a “first time homeowner” distribution, you just can’t have owned a home in the prior 24 months.

Besides these and other nice aspects, it’s also nice throughout the year to be reminded to make those contributions. It doesn’t really do you any good to read all about the advantages of having one if you don’t set one up and contribute to it. We’re over half way through the year so you can gauge your contributions accordingly. Also, remember that you can still make contributions for 2007 up until the April tax deadline in 2008. Don’t use this as an excuse to put it off, but as a back up scenario. So, it’s time to evaluate your situation.

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