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. 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.
Annual contributions to a Roth IRA are subject to the contribution limits shown previously in “All About IRAs“ 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 $167,000 (married filing jointly) or $95,000 to $105,000 (single filer).
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.
Further details on IRA provisions may be found in IRS Publication 590, Individual Retirement Arrangements. This publication may be obtained at no cost by calling 1-800-TAX-FORM or downloading it online.
