Roth IRA Rules
A Roth IRA can be set up by anyone (within the income limits) who is eligible for a Traditional IRA, so this
includes anyone who has earned compensation during the year in which they want to make a contribution.
Roth IRA Vs Traditional IRA
The primary difference between a Roth IRA and the other IRA Plans is the tax treatment of contributions and
distributions. With all other IRAs the contributions can be deducted from your taxes in the year it is contributed,
with a Roth IRA any contribution is made with After Tax dollars so there is no tax deduction. The trade-off for
this is that while distributions from all other retirement plans are treated as taxable income when you make a
withdrawal all qualified distributions from a Roth IRA are tax free. This is an amazing benefit when you think
about it, the money can grow tax deferred for years and then can be withdrawn after age 59 1/2 tax free.
Additionally, you can continue to contribute to a Roth IRA beyond age 70 1/2. You can also leave money in your
Roth IRA until your death, there are no minimum withdrawal requirements.
Roth IRA Eligibility
Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified AGI is less than:
$176,000 for married filing jointly or qualifying widow(er),
$120,000 for single, head of household, or married filing separately and you did not live with your spouse at
any time during the year, and $10,000 for married filing separately and you lived with your spouse at any time
during the year
Roth IRA Contribution
Limits For 2010 - 2011
The contribution limits for a Roth IRA are the same as for the Traditional IRA Contribution Limits so for 2010 -
2011 the contribution limits are $5000 if you are below the age of 50 and $6000 if you are 50+ by the end of the
contribution year. As with the Traditional IRA your contribution can be split between a Traditional and Roth IRA
but the combined amount can't exceed these limits.
Roth IRA Withdrawal Rules
As with the Traditional IRA qualified withdrawals can be made after the age of 59 1/2 is reached. Prior to that
age there will be a 10% penalty for making a withdrawal unless it meets one of the ira withdrawal penalty exceptions.
As mentioned earlier, Roth IRA withdrawals are NOT treated as taxable income since all contributions made to a
Roth IRA are done using "After Tax" dollars.
Unlike the other IRA plans there is no mandatory withdrawal clause at age 70 1/2, in fact you can continue to
make contributions to a Roth IRA even after 70 1/2 so
Roth IRA Conversion
Those who would like to take advantage of the Roth IRA Benefits can convert their
Traditional, SEP or Simple IRA to a Roth IRA at anytime. However, since the contributions were originally
deducted from your taxes you will need to claim the amount converted as taxable income. Currently this
amount can be claimed in the two years following the year of the conversion. In other words, if you convert
your Traditional IRA to a Roth in 2010 you can claim 1/2 of the income in the 2011 tax year and 1/2 in the 2012 tax
year. This tax break helps alleviate some of the pain of doing a conversion but it still can create a
challenge depending upon the size of the IRA.
Additionally, you don't have to transfer your entire IRA at one time so you can do a portion of it based on how
much tax burden you feel you could afford. The same is true when you make annual contributions, you can
contribute part of it to your Traditional IRA and part to your Roth as long as the total doesn't exceed your annual
contribution limit. Since Roth IRA proceeds are much more flexible when you are retirement age and
Traditional IRA contributions can reduce your current tax burden both can play a beneficial role in your financial
Roth IRA Benefits
Roth IRA Eligibility
Roth IRA Contribution Limits
IRA Withdrawal Rules
Roth IRA Conversion Rules
Health Savings Account Rules