What Makes The Roth IRA So Unique?

1.  The money you contribute to a Roth IRA has already been taxes.  So the principal amount is never subject to taxes or penalties in the future, as long as you stay within the contribution guidelines.

2.  The retirement plan allows the money you contribute to grow tax-deferred.  If you do not withdraw any of the earnings until you have had a 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 income equal to the amount you contribute up to a maximum of $4,000 ($8,000 combined for spouses) per year in addtion to any catch-up contribution.  There are income thresholds which may reduce the amount you can contribute.

What Is A Catch -Up Contribution?

If you are 50 or older, you can make a catch-up contribution in the amount of $1,000 to your IRA.

How Much Can I Contribute?

Individuals may contribute up to $4,000 per year if their modified adjusted gross income (MAGI) is less than $99,000 plus a catch-up contribution if this applies.  If an individual's MAGI is between $99,000 - $114,000, they may contribute a reduced amount adjusted for their income.  Married couples filing jointly may contribute up to $4,000 each if their MAGI is less than $156,000 - $166,000.

Roth IRA contributions may not be made by individuals with MAGI of more than $114,000, or couples with MAGI of more than $166,000.

In addition, if an individual has reached age 50 or older by the closed of the taxable year, an additional catch-up contribution of $1,000 may be made.

Even Though I Cannot Deduct My Roth IRA Contributions, Is There A Tax Credit That Is Available?

If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50% of your retirement savings contributions that do not exceed $2,000.  An eligible individual is defined as someone who is:

-18 years of age as of the close of the taxable year.
-not a dependent of another taxpayer, and
-not a full-time student.

Please see a competent tax advisor to determine if you qualify for this credit.

When Can I Use My Roth IRA Assets?

If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA.  First, a 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, or
• 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.

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.