A Roth IRA is a special savings plan authorized by the Federal government to help you
accumulate funds for your retirement. Contributions are non-deductible but all withdrawals,
including earnings, are tax-free if the account has been open for five years and the account
holder is 59 1/2 or older.
Below is a list of frequently asked questions. Click the question to see more information.
Who Is Eligible To Contribute To A Roth IRA?
I Am An Active Participant In An Employer-Sponsored Retirement Plan, May I
Contribute To A Roth IRA?
If I Contribute To A Roth IRA, Will It Affect The Amount That I
Can Contribute To My Employer-Sponsored Retirement Plan?
Are Interest And Dividend Earnings Tax-Deferred?
How Much Can I Contribute To A Roth IRA
"CATCH-UP" CONTRIBUTIONS FOR PEOPLE 50 AND OLDER
Must I Contribute The Full Amount Each Year?
When Can I Make Withdrawals?
Is There A Penalty For Early Withdrawals?
When Are Taxes Paid On Roth IRAs?
Can A Traditional IRA Be Converted To A Roth IRA?
Conversion From A Traditional IRA to Roth IRA?
Can Funds Be Rolled Over From One Roth IRA To Another Roth IRA?
Can My Roth IRA Be Inherited?
What Is the Deadline For Contributing to a Roth IRA?
Who Is Eligible To Contribute To A Roth IRA?
Every individual who has earned income or received alimony may contribute. Income from other
sources such as investments or inheritances does not qualify. The accounts are available to
couples with a modified adjusted gross income (MAGI) of up to $150,000 and singles up to
$95,000. Contributions are phased out between $150,000 and $160,000 for couples and $95,000
to $110,000 for singles.
I Am An Active Participant In An Employer-Sponsored Retirement Plan, May I Contribute To A Roth IRA?
The fact that you participate in an employer sponsored retirement plan does not exclude you
from making a non-deductible contribution to a Roth IRA.
If I Contribute To A Roth IRA, Will It Affect The Amount That I
Can Contribute To My Employer-Sponsored Retirement Plan?
No. The amount you contribute to your employer sponsored plan will not be affected by your
Roth IRA contribution.
Are Interest And Dividend Earnings Tax-Deferred?
All the earnings you accumulate in your IRA remain tax sheltered and if they remain in the
account for a period of five successive tax years they can be withdrawn tax-free. There are
certain criteria that must be met to enjoy tax-free and penalty-free distributions.
How Much Can I Contribute To A Roth IRA?
NOTE: Legislation in June of 2001 increased annual Roth IRA contributions as follows:
2005 - 2007 $4,000
2008 and thereafter $5,000
YEAR 2005 - 2007
You can contribute all or part of compensation, up to:
- Individual Taxpayer - $4,000
- Married Taxpayer - $8,000 where both spouses have earned income (each spouse can contribute up to $4,000 each).
- Spousal IRA - $8,000 for married taxpayers filing jointly. (Yearly contributions may
be divided between the accounts, provided the total contribution does not exceed $8,000
and neither account is allocated more than $4,000). Total yearly contribution that can
be made by an individual to all IRAs, Traditional (deductible, nondeductible) and Roth
IRAs, is $4,000 not counting rollover contributions.
"CATCH-UP" CONTRIBUTIONS FOR PEOPLE 50 AND OLDER
To make up for lost time, workers 50 and older before the end of the taxable year can make
additional contributions above the new maximum limits as follows:
- $ 500 a year (years 2004 - 2005)
- $1,000 a year (year 2006 & thereafter)
Must I Contribute The Full Amount Each Year?
No. You can contribute any amount your budget allows, either in one or more contributions.
In fact, if you choose, you need not make any contributions in a given year.
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 - no distribution is
subject to either taxation or penalty). Tax-free withdrawals of earnings are permitted after
age 59 1/2, in the event of death or total disability, or as a qualified first-time home
buyer (up to $10,000). In order to be tax-free they must have remained in the account for a
period of five successive tax years. There is no mandatory age requirement for distributions
and funds may remain in the account during the account owner's lifetime.
Is There A Penalty For Early Withdrawals?
There could be a 10% penalty for withdrawing all or any part of the earnings. Taxable
distributions are not subject to the 10% early withdrawal Penalty if the individual is
59 1/2, dead, disabled, or if taking equal period payments over his or her life expectancy
for at least five years or until age 59 1/2, whichever comes later, or for college expenses,
first-time home purchase up to $10,000, certain medical expenses, and certain other uses.
When Are Taxes Paid On Roth IRAs?
Taxes are never paid on the original contributions which are not tax deductible in the year
of your contribution. Taxes must be paid on all withdrawal of earnings which have not
remained for a period of five successive tax years. (For example, if a taxpayer's first
contribution is made for tax year 2003, 2003 is the first taxable year, and 2007 is the
fifth taxable year.)
Can A Traditional IRA Be Converted To A Roth IRA?
Yes, a Traditional IRA can be converted to a Roth IRA if your adjusted gross income in the
year of conversion is under $100,000 (same for both single filers and married couples who
file jointly). Married taxpayers who file separately are not eligible for a Roth conversion.
Conversion From A Traditional IRA to Roth IRA?
A Traditional IRA may be converted to a Roth IRA using special rules. Guidelines for a
conversion are as follows:
- You must take a distribution from your traditional IRA and complete the rollover within 60 days.
- The IRS will treat as income any sums that would have been taxable.
- Make sure to get all the facts to see if it will be fiscally worth it to convert.
- Your adjusted gross income must be less than $100,000 (joint or single return) for
the tax year in which you make the rollover. If you are married, you are not eligible to
convert if you file separately. A separate Roth IRA should be used for the converted IRA
amounts. These amounts must be accounted for a period of five years following the
rollover.
Important: You will have to pay tax on the transferred amount. Your tax advisor can help
explain how to calculate it.
Can Funds Be Rolled Over From One Roth IRA To Another Roth IRA?
Yes, you may transfer or rollover from one Roth IRA to another Roth IRA tax-free and
regardless of your adjusted gross income.
Can My Roth IRA Be Inherited?
Yes. When you die, the entire proceeds can be passed on tax-free to your beneficiaries,
providing your Roth IRA meets the five-year test.
What Is the Deadline For Contributing to a Roth IRA?
You can open or make contributions to your Roth IRA any time up to and including the due
date of your tax return for the previous tax year, normally April 15th.
