A Roth IRA contribution
is not tax deductible, however, earnings accumulate tax free and
unlike Traditional IRAs, you are not taxed on withdrawals. Since
your contributions have already been taxed, your principal and interest
can be withdrawn tax free.
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Am I eligible for a Roth IRA?
Unlike a Traditional
IRA, you can contribute to a Roth IRA even if you are over 70 1/2
if:
- you have
earned income equal to or greater than your contribution amount
and
- your modified
adjusted gross income is less than $110,000 for single filers
and $160,000 for married filing jointly and less than $10,000
for married filing separately.
Recent tax reform
has increased the allowable annual contribution limits as follows:
| Contribution
Restrictions |
| Filing
Status |
MAGI |
Contribution |
| Single
tax filer |
less
than $95,000 |
full contribution |
| Single
tax filer |
$95,000-$109,999 |
contribution
phased out |
| Single
tax filer |
>$110,000 |
no contribution |
| Married
filing jointly |
less
than $150,000 |
full contribution |
| Married
filing jointly |
$150,000-$159,999 |
contribution
phased out |
| Married
filing jointly |
>$160,000 |
no contribution |
| Married
filing separately |
$0-$10,000 |
contribution
phased out |
| Married
filing separately |
>$10,001 |
no contribution |
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How
much can I contribute?
Maximum contribution
amounts vary by year as follows:
Maximum
Contributions |
| Tax
Year |
Annual
Limit |
| 2002-2004 |
$3,000.00 |
| 2005-2007 |
$4,000.00 |
| 2008 |
$5,000.00 |
| 2009
and after |
$5,000.00
+ $500.00 per year for inflation adjustments |
Your maximum contribution
may be limited or phased out based on your modified adjusted gross
income
| Contribution
Restrictions |
| Filing
Status |
MAGI |
Contribution |
| Single
tax filer |
less
than $95,000 |
full contribution |
| Single
tax filer |
$95,000-$109,999 |
contribution
phased out |
| Single
tax filer |
>$110,000 |
no contribution |
| Married
filing jointly |
less
than $150,000 |
full contribution |
| Married
filing jointly |
$150,000-$159,999 |
contribution
phased out |
| Married
filing jointly |
>$160,000 |
no contribution |
| Married
filing separately |
$0-$10,00 |
contribution
phased out |
| Married
filing separately |
>$10,001 |
no contribution |
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What
is a catch-up contribution?
For tax years
2002 and after individuals who attain the age of 50 before the end
of the tax year may be eligible to contribute a "catch-up"
contribution in addition to their normal contribution.
IRA
catch-up Contributions |
| Tax
Year |
Annual
Limit |
| 2002-2005 |
$500.00 |
| 2006 and
after |
$1,000.00 |
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Are
my Roth IRA earnings taxable?
The earnings on
your Roth IRA are not taxable.
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Can
I get a tax credit for my contribution?
For the tax years 2002 through 2006, certain individuals may receive
a non-refundable tax credit (not to exceed $1,000.00) for contributions
made to Roth or Traditional IRA's. If eligible, the tax credit is
equal to the applicable percentage on up to $2,000.00 of a qualified
retirement savings contribution. To be eligible for the tax credit,
you must:
- be age 18
before the end of the tax year
- not be a
dependant or full time student
- have adjusted
gross income within the following limits...
| Adjusted
Gross Income |
| Joint
Return |
Head
of Household |
All
others |
Applicable
percentage |
| Over |
But
not over |
Over |
But
not over |
Over |
But
not over |
| $0 |
$30,000 |
$0 |
$22,500 |
$0 |
$15,000 |
50% |
| $30,000 |
$32,500 |
$22,500 |
$24,375 |
$15,000 |
$16,250 |
20% |
| $32,500 |
$50,000 |
$24,375 |
$37,500 |
$16,250 |
$25,000 |
10% |
| $50,000 |
|
$37,500 |
|
$25,000 |
|
0% |
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When can I withdraw my Roth
IRA assets?
You can make tax
free and penalty free withdrawals from your Roth IRA if your Roth
IRA has been open for a minimum of 5 years and:
- you are
over age 59 1/2 (unless you receive equal payments over your
life expectancy)
- death or
disability
- qualified
medical expenses
- qualified
education expenses
- first time
home purchase (up to $10,000)
- due to IRS
levy
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Am
I ever required to withdraw my Roth IRA funds?
Unlike a Traditional
IRA you are not required to take minimum distributions at age 70
1/2. You can leave funds in your Roth IRA until you need them.
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Can
I move my Roth IRA or combine Retirement Savings?
You can move your Roth IRA from one financial institution to another.
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Can
I convert my Traditional IRA to a Roth IRA?
Yes.
There are specific rules for converting a Traditional IRA to a
Roth IRA. Some of these include:
- your modified
adjusted gross income must be $100,000 or less
- if you are
married, you must file a joint tax return
- you must
pay taxes on the pre-tax dollars that you move
- the conversion
must be completed within 60 days
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