Time For A Checkup

New And Improved

Eight months after its introduction, the Roth IRA continues to prompt questions, particularly among new business owners.

In essence, the new retirement account option is available to anyone with adjusted gross income of less than $95,000 ($150,000 for couples). You can contribute up to $2,000 per year ($4,000 for couples) of after-tax income, even if you participate in an employer-sponsored retirement plan.

Roth IRA contributions aren't deductible, but after five years, all withdrawals are tax-free once you reach age 591¦2.

If you're still in a job with a 401(k) plan, "max out the 401(k) first to take advantage of matching contributions from your employer, then channel excess funds into a Roth account," says Ed Slott, a CPA in Rockville Centre, New York.

"But if your business is generating so much profit that you need a deduction--yet so little that you're tight on cash--a traditional IRA is preferable," Slott says, "unless you're [also] employed and qualify for a pension with your employer, in which case you're not entitled to deduct IRA contributions. In this situation, again, the Roth would be your choice."

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