The ROTH-IRA allows investors a newer option
regarding retirement planning. As with a traditional IRA, you won't
pay taxes on any earnings in your account while they remain there.
But unlike a Traditional IRA, contributions are made on an after-tax
You can open a ROTH IRA if you earn income from wages or salary
of at least $2,000 per year. However, income limits apply:
- Single Filers:
AGI must be less than $95,000
- Married Couples: AGI must be less than
$150,000. (You qualified for a partial contribution if you are
married and your AGI is between $110,000 and $160,000.
To determine your contribution for the year, you
have to reduce each spouse's otherwise allowable ROTH IRA contribution
limit of $4,000 by 13¢ for every dollar of Modified AGI between
$110,000 and $160,000 )
Individuals over the age of 50 may be eligible
for a $500 annual "catch-up" contribution.
Your maximum IRA contribution per year can be $4,000 or 100% of
earned income, whichever is less. Please note your contributions
to all IRAs cannot exceed $4,000.
Your contributions are NOT tax-deductible. Regardless of whether
or not you are an active participant in an employer's retirement
plan, Roth IRA contributions are never tax-deductible.
- Your contributions grow tax-free over
the life of your account.
- There are not up-front tax savings for
- Upon death, your beneficiaries will receive
the proceeds of the account without having to pay any
tax, as long as the account has been open for five years
- Distributions don't have to begin at age
- Generally, you can withdraw your Roth
IRA contributions tax-free and penalty-free if your account
has been open for more than five years and you are at
least 59 1/2 years of age.
- If you take a distribution of earnings
before reaching 59 1/2 (Early Withdrawals), you will owe
both the tax due and a 10% early withdrawal penalty.
Other reasons that you can withdraw money from your account:
- Tax-free and penalty-free for the purchaser
of a first home (Up to $10,000).
- You can make penalty-free withdrawals for qualified
higher education costs (for yourself, your spouse, children
or grandchildren). Generally, ordinary income-tax rates would
apply to the taxable portion of the withdrawal amount.
- Death or Disability. If the account is less
than five years old, you will owe taxes on earnings, not on
original contribution. In addition, you will owe the 10% penalty
on early distribution. On the other hand, if the account is
older than five years old, no taxes or penalties will be owed.