The Roth IRA can be a very powerful vehicle to save for retirement. I’ve been getting a lot a questions lately about the Roth IRA and thought it would be helpful to share them in a Q & A format.
My wife and I both opened a Roth IRA account with $4,000 each. Can we add more to our IRA before the end of the year? – Mac
The 2008 Roth IRA Limit  is $5,000 (or $6,000 for age 50 and over). Assuming you meet the eligibility requirements, you can each put additional money in your IRAs for 2008. If you want to plan ahead for next year, the 2009 Roth IRA Limits  and 2010 Roth IRA Limits  remained the same.
Can I contribute to the maximum limit, for both the 401K and the IRA? Or are there some limits if you have each kind of account? – Rebecca
Yes, you can contribute to both a 401k and an IRA . The limits will be based on your income, but you can have both. I usually contribute to both each year.
I am a current college student and I want to open up a Roth IRA, but don’t think I will have Adjusted Gross Income of more than $2500 for 2008. What happens if I fund it to the ‘maximum’ amount of $5000 with money I have just sitting (and not growing) in my checking account. – Scott
Unfortunately, you can only contribute as much to a Roth IRA as your earned income (or a spouse who has earned income). Here is a helpful list to determine what Qualifies as Income for IRA Contributions . Money sitting in a checking account will not count.
Can you withdraw from your Roth IRA before age 59 1/2 without a 10% penalty? -Mo
You can. I covered some of the ways to do so in How to Make Early Roth IRA Withdrawals . Although please note the disclaimer that the withdrawal methods are only explained as part of a plan to access funds for early retirement. I don’t recommend tapping your retirement funds for other purposes!
What if I earn too much to contribute to a Roth? – Mike
You can contribute to a nondeductible IRA and convert it to a Roth IRA in 2010 when the conversion limits disappear . Although the conversion will be taxable, since you must convert a pro-rata  amount of your traditional and nondeductible IRA. (For those who want to convert just their traditional IRA to avoid the tax, there is a Roth IRA Conversion Strategy to Avoid Taxes .)
My daughter is 14 now. If I open a Roth IRA account for her in her name now, how will it affect her when she is going to apply for college financial aid or scholarships? – David
As long as she has earned income, there is no age restriction for a Roth IRA. In fact, I plan to do the same once my children are earning some income. For more information see Roth IRAs for Minors .
As far as financial aid, if she doesn’t make any withdrawals during her college years, it shouldn’t affect her financial aid. The money in a Roth IRA is not counted as an asset , although any withdrawals during the year would be. Although, from what I’ve read it looks like this is the federal financial aid standard. If she were to apply to a private school, they may have their own formula for determining aid which may or may not include retirement accounts.