How do dividens in roth IRAs work? Do they enable you to put more than $4000 in? Is it taxed?

Answer 1

The most you can currently put into a Roth IRA for 2006 or 2007 if you are under 50 is $4,000. However, the dividends earned in a Roth IRA are tax-deferred so you don't have to pay tax on them each year. The other nice feature of the Roth IRA is that the growth and earnings are all tax-free at 59 1/2.

Answer 2

People under the age of 50 can invest $4,000 in a Roth IRA from their earned income. (Income limits apply.) Since this is income that is already taxed withdrawals are not taxed. Earnings are *usually* also not taxed.
The downside of Roth IRAs compared to 'regular' IRA is that they are not tax deductible. It depends on your income tax bracket, what you expect it to be after you retire and many other factors so read the Wikipedia article and then meet with your banker or investment adviser to choose the right IRA for you. Usually a Roth IRA is a good plan for younger people. Traditional IRAs are better for older people because their tax rate will most likely go down in retirement. It's hard to say what the tax brackets will be when younger people retire - 30-40 years from now. Most likely they will be higher than they are today.

Short answer is regular IRA funds are tax deductible, earnings and withdrawals are taxed when withdrawn. Roth IRAs are paid for with income that's already taxed and withdrawals are not taxed.

Answer 3

The dividends arent taxed in a Roth IRA. You cant put in more than four thousand, unless you're over 50. In 2008 it goes up to five thousand dollars for people under 50. The dividends are reinvested so in effect it adds more and grows faster, compounded.

Answer 4

The dividends aren't counted as contributions--they are simply the earnings on your contributions. They are not taxed until you take them out (if you have a Roth IRA, they are never taxed).