What Is a Roth IRA?

The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period. The term "tax free" means free from federal income tax. 

Am I Eligible for a Roth IRA?

Basically, there are two requirements for eligibility to contribute to a Roth IRA: you or your spouse must have earned income and your MAGI cannot exceed certain limits.

How Much Can I Contribute

You may contribute any amount up to 100 percent of your earned income or $4,000, whichever is less, as long as your MAGI is within prescribed limits.

What if I Need Access to My Money Now?

A helpful feature of the Roth IRA is that, for nonqualified distributions, original contribution amounts are returned first. Contributions (as opposed to earning) are not subject to a taxation of the 10 percent IRS premature-distribution penalty when distributed. In other words, you can always get back your principal tax free and  penalty  tax free for any reason.

Do I Pay Taxes on My Earnings?

No (provided you take the earnings as part of a qualified distribution). Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a withdrawal, you pay no taxes on any of the earnings that your contribution  has generated.

What Is a Qualified Distribution

In order for earnings to be tax free, you must first meet a five-year holding period for your Roth IRA. After that, any earnings you withdraw for a qualified distribution reason are income tax free and penalty tax free. Qualified distributions include:

• Distributions made on or after the date on which you attain age 59 1/2

• Distributions made to your beneficiary (or your estate) upon your death.

• Distributions attributable to your being disabled, and

• Qualified first-time home buyer distributions (up to $10,000).

When Do I Have to Start Taking Distributions From My Roth IRA?

You never have to take distributions from  your Roth IRA. That's another benefit of the Roth IRA over traditional IRAs. Assets held in a Roth IRA are not subject to age 70 1/2 required minimum distributions.

What Happens if the Event of My Death?

Your named beneficiary(ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary(ies) receives the funds is determined by required minimum distribution rules and your ira agreement

How Do I Move Funds From a Traditional IRA to a Roth IRA?

The law allows a single or joint income tax filer with a MAGI of $100,000, or less, to convert his/her traditional IRA into a Roth IRA.  For married taxpayers filing joint returns, the $100,000 limit for conversion eligibility applies to the couple's joint MAGI.  A married individual who files a separate return is not eligible to convert.  (specific rules may apply in this case; please seek professional tax or legal guidance.)

For a conversion to a Roth IRA, the amount converted will be subject to income taxes.  However, the funds will not be subject to a 10 percent premature-distribution penalty tax.