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Chapter 21. No 401(k)? No Problem! > Roth IRAs - Pg. 218

No 401(k)? No Problem! 218 Warning! Contribution limits exist on all IRAs (limits do not apply to rollovers, except that there is a $100,000 limit on rollovers to a Roth IRA). The maximum total yearly contribution can be divided among the different types of IRAs. For instance, if your limit is $3,000, you can put $1,000 in a traditional IRA and $2,000 in a Roth. Roth IRAs first became available as a savings vehicle in 1998. Contributions are not deductible, but the earnings are allowed to compound tax-deferred. Although they're not deductible up front, Roth IRAs have a feature that may prove to be much more beneficial to the taxpayer if you hold the Roth IRA for at least five years. Withdrawals from the account are free of income taxes if the owner has attained the age of 59½, the money is to be used for the first-time purchase of a home, or the owner becomes disabled. Roth IRAs are treated in many ways like ordinary IRAs, so you must have earned income to be eligible, but you can continue to contribute to a Roth IRA past age 70½. The distribution rules that apply to ordinary IRAs do not apply to the Roth IRA. Holders of a Roth IRA need not take a distri- bution by April 1 of the year following the year in which they reach age 70½. Contribution limits for Roth IRAs are the same as for traditional IRAs. However, the phaseouts for higher-income individuals are different. The maximum yearly contribution that can be made to a