How does a Roth IRA work?
Unlike Traditional IRAs, contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free. Of course, you must follow the plan provisions to get this tax-free advantage.
Who is eligible to contribute to a Roth IRA?
Every individual, any age, who meets the compensation and income requirements for the year for which the contribution is attributed to. See chart below for income requirements.
MAGI LIMITS FOR REGULAR ROTH IRA CONTRIBUTIONS
|Filing Status||Income Limit for Full Contribution||Phase out Range (Partial Contribution)*|
|Single||Up to 112,000||$112,000 - $127,000|
|Married, filing jointly||Up to $178,000||$178,000 - $188,000|
|Married, filing separately**||N/A||$0 - $10,000|
|*Owners with a MAGI within the phase-out range for
Roth IRA contributions will calculate their maximum allowable contributions
when filing their income tax returns.
**If the owner did not live with his or her spouse for even one day during the year, then he or she is considered a single filer for purposes of determining Roth IRA eligibility.
Can I have both a Traditional IRA and a Roth IRA?
Yes, you can maintain both types of IRAs. You can make contributions to both in the same year, but the contributions to both the Roth and the Traditional IRAs cannot exceed the maximum contribution limit for all IRAs.
When can I make withdrawals?
Penalty-free and tax-free withdrawals of your contributions are permitted at any time (until total distributions from all Roth IRAs exceed the contribution amount). Tax-free withdrawals of earnings are permitted if the owner meets the 5-year test and has a qualified reason. The five-year clock for Distributions of Roth IRA earnings begins when the first contribution is made to any of the owner's Roth IRAs.
The Qualified Reasons are:
Am I required to take a Distribution from my Roth IRA at 70 1/2?
Unlike the Traditional IRA, you are not required to take distributions at 70 1/2.
Is there a penalty for earnings withdrawn from a Roth IRA before age 59 1/2?
Earnings withdrawn from a Roth IRA before the owner reaches age 59 1/2 may be subject to a 10% tax on early distributions.
The following exceptions may apply:
This document is for general information only and is not intended to provide specific advice or recommendations for any individual. We suggest that you consult your attorney, accountant, or financial tax advisor with regard to your personal situation.