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Every year the Congress of the United States makes changes to Roth IRA rules, limits and contributions. It is vitally important for the private American investor to familiarize themselves with these changes in order to both maximize their investment income and avoid penalties. First, though, let's review what we are talking about when we discuss IRA's.

History of the IRA

The individual retirement account, or IRA, is a tax-sheltered retirement plan. It was originally created in thirty four years ago to aid people not covered by pension plans. Then, in 1981, IRA rules were liberalized upwards by $500 to allow individuals to contribute up to $2,000 a year to such accounts. The coverage was extended to employees already in corporate pension programs. These contributions are deductible from federal income tax payments. IRA investment money may be placed in high-yield investments, with taxation deferred until money is withdrawn after retirement.

In 1998, Congress instituted the Roth IRA. Named after Congressman William Victor Roth, Jr., the Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. As an individual retirement plan, it differs from traditional IRAs in that contributions are not deductible. The earnings are tax-free, but there are no tax-deduction benefits for the contributions made each year.

2008 MAJOR CHANGES

FOR 2008, your Roth IRA contribution limit is reduced or even phased out in the following situations:

*IF your filing status is married and filing jointly or you are a qualifying widow(er) and your modified AGI is at least $159, 000, then you cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.

*IF you file your taxes as single, head of household, or married but filing separately and you did not live with your mate at any time in 2008 and your modified AGI is at least $101,000, then you cannot make a Roth IRA contribution if your modified is $116,000 or more.

*IF your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than zero, then you cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

FOR 2008, if your contributions are made only to Roth IRA's, then your contribution limit will generally be the lesser of $5,000 or your taxable compensation for the year. But, if you are age 50 years or older, then your contribution limit will generally be the lesser of $6,000 or your taxable compensation for the year.

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