Roth IRA

What makes the Roth IRA so unique?

Imagine for a moment you have just received a paycheck from your company. You look at your payroll summary and notice there are no federal income taxes withheld. Your initial reaction is that something is wrong. It’s not if this check is from your Roth IRA. Two factors make this possible:

  • First, the money you contribute to a Roth IRA has already been taxed. So the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.
  • Second, this retirement plan allows the money you contribute to grow tax-deferred. If you do not withdraw any of the earnings until you have had the plan for at least five years, and satisfy one of the qualifying events, those tax-deferred earnings become tax-free,

Who is eligible?

Unlike the Traditional IRA, there is no 70 1/2 age limit on making contributions. You simply need to have earned an income equal to the amount you contribute up to a maximum of $4,000 ($8,000-$10,000 combined for spouses) per year. There’s a $1000 “catch up” per year, in 2006 – 2008, if you’re 50 years old or older. (There are income thresholds which may reduce the amount you can contribute.)

How much can I contribute?

Individuals may contribute up to $4,000 per year if their modified adjusted gross income (MAGI) is less than $110,000. Married couples filing jointly may contribute up to $4,000 each if their MAGI is less than $160,000. Contributions for joint filers are reduced for MAGI’s between $150,000 and $160,000. There’s a $1000 “catch up” per year, in 2006 – 2008, if you’re 50 years old or older.
Roth IRA contributions may not be made by individuals with MAGI of more than $110,000, or couples with MAGI of more than $160,000.

When can I use my IRA assets?

If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, the plan must have been open for a minimum of five years. Second, the withdrawal must be made after the occurrence of one of the following events:

  • Age 59 1/2
  • Death
  • Disability
  • First home purchase

Distributions which meet the above requirements are referred to as “qualifying distributions.” While you may take distributions from your Roth IRA at any time, distributions which are not qualifying distributions will be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRA’s.

Can I move money from my traditional IRA to my Roth IRA?

The answer is “yes.” There are specific rules that govern the process of rolling over funds from a Traditional IRA to a Roth IRA. Some of these rules include:

  • Your MAGI must be less than $100,000.
  • If you are married, you must file a joint income tax return.
  • You must pay taxes on all the pre-tax dollars you move.
  • The rollover must be completed within 60 days.

Our representatives may suggest you also seek advice from a competent tax advisor to confirm whether moving your funds is beneficial to you.

Am I ever required to take funds from my Roth IRA?

Unlike the Traditional IRA, there are no required minimum distributions at age 70 1/2. Your earnings can continue to grow until you need them. There are special requirements when these plans pass to your beneficiaries.