Ivesting right

As you think about where to invest in a Roth IRA you first need to be clear on a couple of income rules.

This is important because there is a maximum income for a Roth IRA — an income-determined limit to what you can invest. Although the government may adjust the exact limit, and you should check this at the start of the tax year, it has stayed the same for some time. Anyway, if you earn more you can open up a traditional IRA.

But here’s how the limits are currently set that determine where to invest in a Roth IRA.

Where you and your spouse file returns together, the maximum income for a Roth IRA is currently $150,000. Which means if your combined earnings in a year are that much or less, you can contribute up to $2000 into a Roth IRA. There is some fine print around the exact amount you can pay into it, but in most cases it will be up to $2000. Earn more, and the amount you are allowed to pay in tapers off until $160,000 when you can contribute nothing.

Individual filers can also put in up to $2000, but currently only where their yearly earnings are $95,000. The cut-off point for them is $110,000.

The next consideration of where to invest in a Roth IRA involves learning about tax law.

Your contributions to a Roth IRA will be taxed as you make them, but what’s left grows and when you come to take out those funds you don’t pay tax. A traditional IRA is structured the other way around: you pay no taxes as you save but will be asked to pay tax when you take your investment out.

Tax law also controls when you can pull your investment out of an IRA. After a Roth IRA account has been operating for five years it can be disbursed (tax free) at any time after age 59 1/2, in any way you choose and you can keep contributing to this type of IRA after age 70 1/2. The traditional IRA requires you to stop making payments when you are older than 70 1/2 and you must disburse your investment in a set schedule.

The law on withdrawing your investment early is also different for both types and may influence you as you consider where to invest in a Roth IRA. With a Roth IRA, after five years, you can freely take out the money you put in to buy your first home (there are some restrictions) or meet disability expenses or certain emergencies. Break your investment in a traditional IRA before you’re 59 1/2 and you are usually hit with a 10 percent penalty — although there are some exceptions, like buying your first home.

Of course the yield — the profit — is the other thing you will want to know as you think about where to invest in a Roth IRA. And that may influence your choice of a brokerage.

Here’s what I mean. If you just want to follow along like most people and take a traditional investment option like stocks, then you can put the investment with almost anyone. They will all pay about the same over time, as they are in the one market, and their fees will vary only slightly.

But if you want to put your money to work into an investment like real estate, where some dramatic gains can be fetched — and especially in the current financial climate we’re in — then you have to look around for a broker.

Two reasons. Not all brokers have the experience or access to turn-key real estate investment that can make real estate investment safe and straightforward. And also because you will need to set up a self-directed IRA account, which companies may not have experience in.

In conclusion, you do need to be clear about the rules as you think about where to invest in a Roth IRA. For example, two key areas are your income and your plans for using your investment in the future. Also, consider investment in areas like high-yielding, yet safe, real estate investment. There is information out there that will help you determine if this is where to invest in a Roth IRA. My own web site has a lot of detail and some practical suggestions, and you may like to start there.