What You Need to Know About Roth IRAs


Since its introduction under the Taxpayer Relief Act of 1997, the Roth IRA has become a popular retirement and estate-planning tool among U.S. taxpayers. According to a study done by the Investment Company Institute, Roth IRA assets increased to $215 (estimated) billion as of December 2009.  However, many individuals are prevented from participating in the Roth IRA because of the stringent qualification requirements.  Here we revisit some of these requirements and explore some qualification opportunities that may be available to certain individuals.



Top Earners Pay Almost All of the Federal Income Taxes

The BlogProf:  “After calling for a ‘new civility,’ Obama used his SOTU address to demonize the most productive Americans. Again. A quote from his SOTU speech on January 25, 2011:

‘And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans. It’s not a matter of punishing their success. It’s about promoting America’s success.’

Except it IS a matter of punishing their success.”

The charts and graphs in the article will shock the uninformed that think the rich aren’t paying their fair share of federal income taxes.

Fleeced: The upper 1% earned 19.6% of total income before tax, and paid 41% of the individual federal income tax. “No other major country is so dependent on so few taxpayers”

The BlogProf:  “Darned straight! The rich in this country pay far more than their fair share. And not only does bottom 47% of taxpayers pay no federal income tax, but the bottom 40% GET MONEY BACK! That goes right along in consistency with a prior post of mine: 60 Minutes/Vanity Fair Poll: 50% of Americans that don’t pay taxes thinks “rich” people ought to pay more, even though top 1% pay more than bottom 95%

New Tax Law Packed with Obscure Business Tax Cuts

Associated Press:  “The massive new tax bill signed into law by President Barack Obama is filled with all kinds of holiday stocking stuffers for businesses: tax breaks for producing TV shows, grants for putting up windmills, rum subsidies for Puerto Rico and the Virgin Islands.  There is even a tax break for people who buy race horses.”

Evil Bush Tax Rates Made Rich Bastards Pay More Taxes!

Reason.com:  “For all the yammering about the wisdom or tragedy of extending Bush-era tax rates, precious little hot air has been expended on, like, looking at what effects the goddamn things had on who paid how much tax. Back during the 2008 election, . . . the rich (however defined) have been paying a greater share of income taxes in the aughts.  Below is a chart from the Tax Foundation that lists the percent of federal income tax paid by each income group. Whatever else you want to say about the Bush tax rates, they made the wealthy pony up more of the whole.”

White House Fact Sheet on Proposed Extension of the Bush Tax Cuts

The following is the text of the White House’s December 7, 2010, summary of the deal with Republicans to extend the Bush tax cuts for two years.

The White House, Office of the Press Secretary, December 7, 2010

Fact Sheet on the Framework Agreement on Middle Class Tax Cuts and Unemployment Insurance

The framework agreement announced by the President secures vital tax relief and investments in our workers that will create jobs and accelerate economic growth. The plan has three key accomplishments:

  • Working families will not lose their tax cut. A typical working family faced a tax increase of over $3,000 on January 1st. That’s avoided under this framework agreement, and working families won’t see their tax cuts go away next year.
  • Focused on high impact job creation measures. The framework agreement includes some of the best measures for jumpstarting growth and job creation, including a full year of emergency unemployment insurance benefits, an about $120 billion payroll tax cut for working families and a continuation of tax credits for working families. This is on top of growth generated by extension of the middle-class income tax rates.
  • Does not worsen the medium- and long-term deficit. These are responsible, temporary measures to support our economy that will not add costs by the middle of the decade. The President does not believe it is affordable to make the high-income tax cuts permanent and will continue to have that debate in the years ahead.

Overview of the Framework Agreement:

  • Extending the 2001/2003 Income-Tax Rates for Two Years. The framework agreement includes a mutually agreed upon solution to the impasse over taxes by extending the 2001/2003 income tax rates for two years and reforming the AMT to ensure that an additional 21 million households will not be hit with a tax increase. These measures will provide relief to more than 100 million middle-class families and prevent a tax increase of over $2,000 for the typical family.
  • Additional Provisions Designed to Promote Vigorous Economic Growth. In addition to the 2001/2003 rates, the Administration secured several provisions that are vital for our economy’s growth, which would not have been possible without this framework agreement: $56 billion in unemployment insurance, an about $120 billion payroll tax cut for working families, about $40 billion in tax cuts for our hardest hit families and students; and 100% expensing for businesses next year.


The framework agreement reached by the administration includes an about 2%, employee-side payroll tax cut for over 155 million workers – providing tax relief of about $120 billion next year. This tax cut will have a major impact on jobs and growth – creating substantial numbers of jobs. It is widely recognized by economists across the political spectrum as a high bang for the buck way to boost growth and was cited by both major deficit reduction commissions as consistent with long term fiscal discipline.

A payroll tax cut has been endorsed by experts and commentators from across the political spectrum. Just last month, both the President’s Fiscal Commission and the Bipartisan Policy Center’s Debt Reduction Task Force described a payroll tax cut in 2011 as an effective way to spur growth and job creation. The tax cut legislation would provide for a transfer of General Revenues to the Social Security Trust Fund, ensuring no negative impact on Social Security solvency. And, as economist Nouriel Roubini wrote earlier this year, a payroll tax cut would spur growth because “for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households.”


Economic studies consistently find that lower-income households are the most likely to spend additional money, creating jobs and helping overall growth. That’s why the Congressional Budget Office, for instance, has concluded that “policies aimed at lower-income households tend to have greater stimulative effects.” The President fought to secure a two-year increase of the full Child Tax Credit and Earned Income Tax Credit. These provisions will, together, provide ongoing tax cuts to 12 million lower income families, with a total of 24 million children. In addition, the deal fully extends the American Opportunity Tax Credit for two years.

Lower-Income Working Families Benefited by Expansions in EITC and CTC
Families Children
Total 12.2 24.3
White 5.6 9.8
Hispanic 3.7 8.0
African American 2.2 4.7
Other 0.7 1.7

Illustrative Family: A working family with three children making $20,000 will continue to receive a tax cut of more than $2,000 as a result of the EITC and Child Tax Credit expansions in this framework agreement. The same family would receive an additional $400 tax cut from the new payroll tax cut.

  • Child Tax Credit: The $1,000 child tax credit will be extended for two years with the $3,000 refundability threshold established in the Recovery Act. This extension will ensure an ongoing tax cut to 10.5 million lower income families with 18 million children.
  • Earned Income Tax Credit: The Recovery Act included an expansion of the EITC worth, on average, $600 in additional assistance to families with 3 or more children. It also helped working married families by reducing the marriage penalty in the EITC. Continuing this tax cut  for two years will benefit 6.5 million working parents with 15 million children.
  • American Opportunity Tax Credit: The Recovery Act included a new, partially refundable tax credit of up to $2,500 to help students and their families cover the cost of college tuition. This deal fully extends AOTC for two years, ensuring that more than 8 million students will continue to receive this tax benefit to help them afford college.


The framework agreement extended unemployment benefits at their current level for 13 months, through the end of 2011. This will save millions of Americans searching for work from losing their unemployment benefits in the coming months and will help create hundreds of thousands of jobs.

  • In December alone, 2 million workers who would have lost benefits will continue to receive them because of this framework agreement. Over the next year, 7 million workers will no longer need to worry that their unemployment benefits could be eliminated as they search for jobs.
  • According to the Council of Economic Advisers, passing this provision will create 600,000 jobs in 2011 alone.


In September, the President called for temporarily allowing businesses to expense all of their investments in 2011. This growth-oriented tax cut was included in the framework agreement.

  • According to the Treasury Department, complete expensing could generate more than $50 billion in additional investment in the U.S. in 2011.
  • The provision will provide a crucial incentive to 2 million businesses to invest and create jobs in the U.S and would be the largest temporary investment incentive in American history.
  • The framework agreement also includes a 2-year extension of the R&D tax credit and other tax incentives to support business expansion.

History Shows Higher Tax Rates Do Not Produce More Tax Revenue

Wall St. Journal:  “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.  Even amoebas learn by trial and error, but some economists and politicians do not.  The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.

Federal Tax Rates & Revenue

The 10 Highest State Income Tax Rates For 2011

Forbes lists the ten states that have the highest 2011 income tax rates.  They are:

  1. Hawaii:  11% ($200,000 single/$400,000 married)
  2. Oregon:  11% ($250,000 single/$500,000 married)
  3. California:  10.3% ($1,000,000 single & married)
  4. Iowa:  8.98% ($64,755 single & married)
  5. New Jersey:  8.97% ($500,000 single & married)
  6. New York:  8.97% ($500,000 single & married)
  7. Vermont:  8.97% ($379,150 single & married)
  8. Maine:  8.5% ($19,750 single, $39,550 married)
  9. Washington, D.C.:  8.5% ($40,000 single & married)
  10. Minnesota:  7.85% ($74,780 single, $132,220 married)
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