Page 88 - The Informed Fed--Hearn Wealth Management

relative who receives such a distribution must not have owned a home
in the previous 24 months. Contributions may be made to a Roth IRA

even if the owner participates in a qualified retirement plan such as a
401(k). (Contributions may be made to a traditional IRA in this
circumstance, but they may not be tax deductible.)

If a Roth IRA owner dies and his/her spouse becomes the sole
beneficiary of that Roth IRA while also owning a separate Roth IRA, the

spouse is permitted to combine the two Roth IRAs into a single plan
without penalty.
If the Roth IRA owner expects that the tax rate applicable to

withdrawals from a traditional IRA in retirement will be higher than the
tax rate applicable to the funds earned to make the Roth IRA
contributions before retirement, then there may be a tax advantage to

making contributions to a Roth IRA over a traditional IRA or similar
vehicle while working. There is no current tax deduction, but money
going in

rate and will not be taxed at the expected higher future effective tax rate
when it comes out of the Roth IRA. Assets in the Roth IRA can be

passed on to heirs.
The Roth IRA does not require distributions based on age. All other
tax-deferred retirement plans, including the related Roth TSP, require

withdrawals to begin by April 1 of the calendar year after the owner
reaches age 72. If one does not need the money and wants to leave it to

their heirs, this is a great way to accumulate tax free income. Beneficiaries
who inherited Roth IRAs are subject to the minimum distribution rules.

traditional IRAs. Since the nominal contribution limit is the same for the

post-tax contribution in a Roth IRA. For example, a contribution of the
2008 limit of $5,000 to a Roth IRA may be equivalent to a traditional

IRA contribution of $6,667 (assuming a 25% tax rate at both
contribution and withdrawal). In 2008, one cannot contribute $6,667 to

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