What is a Roth IRA?
The purpose of a Roth IRA is to put away money for retirement. To be classified a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. An IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.
Who can contribute?
Generally, you can contribute to a Roth IRA if you have taxable compensation (this can be in the form of wages, salaries, tips, professional fees, bonuses, etc.). Unlike contributions to a Traditional IRA, contributions to a Roth IRA are not tax-deductible. However, any income generated grows tax-free in a Roth IRA.
To be eligible to make a contribution to a Roth IRA or a deductible contribution to a Traditional IRA, an individual's modified adjusted gross income (MAGI) must be less than a stated amount, depending on tax-filing status.
Are contributions tax-deductible?
Unlike the Traditional IRA, contributions to the Roth IRA are not tax-deductible. However, any income generated grows tax-free in a Roth IRA.
When can I make withdrawals?
After funds have been in a Roth IRA for five years, you can make tax-free withdrawals after age 59-1/2. Early withdrawals, or distributions, from a Roth IRA are normally subject to a 10% additional tax penalty.
Funds may be withdrawn without penalty for certain circumstances such as the purchase of a first home, pay for higher education, or for disabilities.
With a Traditional IRA, an individual must make mandatory withdrawals after reaching age 70½. With a Roth IRA, you don't have to make mandatory withdrawals.
If you satisfy the requirements, qualified distributions are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.
What are the Roth IRA contribution limits?
- Age 49 and under: 100% of compensation, up to $5,500.
- Age 50 and older can contribute an additional $1,000.
What are the income limits for contributions to a Roth IRA?
- Single individuals: $117,000-$132,000
- Married, filing jointly: $184,000-$1943,000
- Married, filing separately: $0-$10,000
If your adjusted gross income exceeds these limits, then you are no longer eligible to contribute to a Roth IRA.
Is there an age limit?
There is no age limitation for Roth IRA contributions. Unlike Traditional IRAs, you can be any age and still qualify to contribute to a Roth IRA.
Contributions to spousal Roth IRA:
With a Roth IRA your spouse can also qualify for a contribution (even if your spouse has little or no compensation) as long as you file a joint tax return.
When to make contributions?
Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions). This means that if you want to make a Roth IRA contribution for this year, you could make it anytime between January 1 and April 15 of the next year.
For complete information and definitions of terms, get Publication 590 “Individual Retirement Arrangements” at https://www.irs.gov/uac/About-Publication-590A