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Roth IRA

A Roth IRA is an IRA in which:

  • Contributions to the account are not deductible.
  • "Qualified" distributions (i.e., withdrawals) from the account are not taxable.
  • Earnings on the account are taxable and subject to an early withdrawal penalty only when a withdrawal is not a "qualified" distribution.

Contents

Qualified Distribution

A "qualified" distribution from a Roth IRA is a withdrawal that meets one or more of the following:

  • Made after the taxpayer attains age 59 1/2
  • Made to a beneficiary after the taxpayer's death
  • Made because the taxpayer is disabled
  • Made by a first-time homebuyer to acquire a principal residence

No withdrawal except those attributable to previously taxed contributions will be a qualified distribution unless it is made after the five-tax-year period beginning with the tax-year in which the taxpayer first contributed to a Roth IRA.

Contributions

Annual contributions to a Roth IRA are subject to the contribution limits as reduced by any contribution made to a traditional IRA. Contributions to a Roth IRA may be made even after the owner reaches age 70 1/2. The annual contribution limit is phased out as AGI increases from $150,000 to $160,000 (married filing jointly) or $95,000 to $110,000 (single filer).

Transfers

Amounts in traditional IRAs may be transferred to Roth IRAs provided the taxpayer's AGI (married or single) for the transfer year is $100,000 or less. Transferred amounts must be included in that year's income, but the money transferred will be exempt from the 10% excise tax for a withdrawal prior to age 59 1/2. No withdrawal allocable to earnings on the transferred amounts is considered to be a qualified distribution unless it is made more than five tax-years after the transfer.

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