Hawaii Roth IRA

With a Hawaii Roth IRA as part of your retirement portfolio, you may reach your goal of financial independence more quickly. A Roth IRA plan offers a host of advantages to retirees in the Aloha State, where the cost of living is high. Retirees in HI may find it difficult to keep up with the costs of housing, food and health care in Hawaii; however, the natural beauty, relaxed pace and diverse culture of this island state make it a paradise for people of all ages.

If you're trying to decide whether to contribute your income to a traditional or a Roth IRA, compare the tax benefits, requirements and restrictions of these plans. The funds you contribute to a traditional IRA are tax deductible, which may be helpful if you are self employed and require a larger deduction to avoid high taxes. Your contributions to a Hawaii Roth IRA come from post-tax income, which allows you to withdraw your funds tax free after the age of 59 1/2, as long as you have held the account for at least 5 years.

Roth IRA Contribution Limits

Tourism and the export industry are leading contributors to the economy in Hawaii, a state whose beaches, flora and fauna attract millions of visitors each year. Because of the many public benefits provided directly through the state, Hawaii state taxes are high. Retirees appreciate having the opportunity to reduce their tax burden with tax free distributions from a Hawaii Roth IRA.

The Internal Revenue Service imposes limits on the maximum amount of taxable compensation you may contribute to a Roth IRA each year. Taxable income includes salary, wages, fees, tips, bonuses and any other income that you receive from your HI employer as a result of your work. [1] Income that you receive from a rental property in HI and nontaxable forms of income like the benefits from a life insurance policy may not be eligible for Hawaii Roth IRA contributions.

Your contributions to a Roth account will continue to grow and may be withdrawn without taxation at any time, once you have had the account for at least 5 years. While the contributions themselves are not subject to tax, you may be taxed on the earnings from your withdrawals if you do not meet the requirements for a qualified distribution. If you are 59 1/2 years old, are disabled or have passed away, the distributions from your account are free from taxes, as long as you meet all IRS requirements.

Each year, you can contribute a maximum annual amount to your Hawaii Roth IRA. For 2012, the maximum annual limit is $5,000. You may contribute up to $6,000 if you are at least 50 years old. Higher contribution limits in your 50s give you the opportunity to accelerate your retirement savings plan, so that you can achieve financial freedom within your desired time frame. If retiring comfortably in Hawaii is your dream, maximize your contributions to a Hawaii Roth IRA once you reach the age of 50.

Buying Your First Home

Whether you live in Honolulu, Kailua, Hilo or one of the other communities in Hawaii, your house will represent a significant financial investment. Buying your first property is an important financial milestone. First time homebuyers can take advantage of a tax credit that allows them to withdraw money from a Hawaii Roth IRA without tax penalties to pay for a down payment on their first home.

When you're shopping for a home, having the ability to put down a large cash deposit will make you a much more competitive buyer. You may qualify for lower mortgage interest rates and better payment terms if you can make a larger deposit. In addition to drawing from personal savings, borrowing from family members or selling other assets that you aren't currently using, consider making a withdrawal from your Hawaii Roth IRA to help pay for your first property.

In order to qualify for an early distribution from your Roth IRA without the standard tax penalty, you must be buying, building or rebuilding a first home. Under normal circumstances, taking a distribution from your account before the age of 59 1/2 will result in a 10 percent tax penalty. However, first time home buyers, disabled individuals and beneficiaries of an account inherited from a deceased relative may not be required to pay the 10 percent penalty. In certain cases, you may take an early distribution to pay for high medical bills that are not covered by insurance. [1]

Preparing for the future requires a certain amount of planning, whether you're getting ready to build a house or making long term plans for a prosperous retirement. A Hawaii Roth IRA can help you reach these goals with tax free investments. Request information from several of the leading Hawaii financial institutions to make an informed decision.

http://www.irs.gov/publications/p590/ch01.html#en_US_2011_publink1000230896 01/10/2012

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