Roth IRA

Roth IRA Features:

  • Contributions made on an after tax-basis
  • Tax-free earnings and distributions
  • Contributions permitted after age 70 1/2
  • Distributions not required after age 70 1/2
  • Maximum annual contributions of up to $4,000 or 100% of earned compensation, whichever is less (If you are age 50 or older, you may make an additional contribution of $1,000 per year.)

What are the Tax Benefits?

  1. The money you contribute to a Roth IRA has already been taxed. So the principal and interest amounts are not subject to taxes or penalties in the future, as long as you stay within the Roth IRA rules.
  2. You may, if you qualify within the modified adjusted income limits, convert your Traditional IRA to a Roth IRA. Any portion of the converted amount attributable to deductible contributions and earnings must be included as taxable income for the year the conversion is made.
  3. The Roth IRA allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had the plan for at least five years, those tax-deferred earnings become tax-free for qualifying distributions.

Qualifying Distributions:

Qualified distributions may be withdrawn tax and penalty free, if the following conditions apply:

  • The Roth IRA must have been open for a minimum of 5 years, AND
  • The distribution must be made after the occurrence of one of the following:
    - age 59 1/2
    - death
    - disability or
    - for the purpose of making a first home purchase

Who is eligible and how much can be contributed?

  • Single taxpayers may contribute up to $4,000 per year of earned income if their modified adjusted gross income (MAGI) is less than $99,000. Those with an MAGI between $99,000 and $114,000 can contribute a reduced amount adjusted for their income.
  • Married couples filing jointly may contribute up to $4,000 each of earned income if their MAGI is less than $156,000. Contributions for joint filers are reduced for MAGIs between $156,000 and $166,000.
  • If you are age 50 or older, you may make an additional contribution of $1,000 per year.

For your specific situation, please contact a tax advisor.