"For you, the contribution is phased out when your income exceeds ninety-five thousand dollars," Roy continued.
"Sounds like this is something Tom can do for the rest of his life," said Cathy, with a teasing glance at Tom.
"Unless you lose your mind and marry him, then hell be over the limit," Roy joked. "In order for your distributions to be tax free, you need to keep your money in the Roth IRA for at least five years and you must be past age fifty-nine and a half when you withdraw it. You also can take it out after five years to make a first-time home purchase, but as I've said before and will say again, I'm not a fan of using your retirement savings for non-retirement goals.
"One more point. You can contribute to more than one type of IRA in a particular year—for example, a deductible IRA and a Roth IRA—but your contributions, in total, can not exceed two thousand.
"What's best for you? You're going to have to do some research and put pencil to paper to figure that out. Don't forget—the best strategy almost always is to maximize your tax-deductible contributions first. Then, all other things being equal, your tax bracket in retirement and the amount of time you plan to leave the money invested may dictate which other tax-deferred option—Roth IRA, non-deductible IRA, or tax-deferred annuity—is best for you. From the various analyses I've seen, the Roth IRA comes out better in the long run for many people. Since you are likely to be in a higher tax bracket in retirement—what with all the wealth you will accumulate by following my advice—the same may be true for you, too."
"You mentioned tax-deferred annuities. What are those?" Tom pushed on.