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
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
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?
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
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
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.