What
is a Roth IRA?
Am I Eligible for a Roth IRA?
How Much Can I Contribute?
Do I Pay Taxes on My Earnings?
What Is a Qualified Distribution?
Does the 10 Percent IRS Premature Distribution
Apply if I Withdraw My Money Before Age 59½?
What If I Need Access to My Money Now?
When Do I Have to Start Taking Distributions From
My Roth IRA?
What Happens in the Event of My Death?
How Do I Move Funds From a Traditional IRA to
a Roth IRA?
When Is the Contribution Deadline for Funding
a Roth IRA?
How Do I Open a Roth IRA?
What
is a Roth IRA?
The Roth IRA is a nondeductible
account that features tax-free withdrawals for certain
distribution reasons after a five-year holding period.
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Am
I Eligible for a Roth IRA?
Basically, there are
two requirements for eligibility to contribute to a Roth IRA:
you must have earned income (or your spouse must have earned income)
and your modified adjusted gross income (MAGI) cannot exceed certain
limits.
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How Much Can I Contribute?
You may contribute
any amount up to 100 percent of your earned income or $2,000,
whichever is less, as long as your MAGI is within prescribed limits.
These prescribed limits for contribution are:
Single Filers:
|
MAGI
of $95,000 or Less
|
MAGI
Between $95,000 and $110,000
|
MAGI
of $110,000 or More
|
| Full $2,000 Contribution |
Partial Contribution |
No contribution |
Married, Joint Filers:
|
MAGI
of $150,000 or Less
|
MAGI
Between $150,000 and $160,000
|
MAGI
of $160,000 or More
|
| Full $2,000 Contribution |
Partial Contribution |
No contribution |
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Do I Pay Taxes on My Earnings?
NO (provided
you take the earning as part of a qualified distribution). That's
the best part of the Roth IRA. Unlike a traditional IRA, you cannot
take a tax deduction for any of the contributions that you make
to a Roth IRA. However, when you're ready to take a withdrawl,
you pay no taxes on any of the earnings that your money has generated.
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What
Is a Qualified Distribution?
In order for earnings
to be tax-free, you must first meet a five-year holding period
for your Roth IRA. This period begins with the tax year for which
the first contribution is made. After that, any earnings you withdraw
for a qualified distribution reason are tax free and IRS penalty
free. Qualified distributions include:
Does
the 10 Percent IRS Premature Distribution Apply if I Withdraw
My Money Before Age 59½?
The 10 percent IRS
penalty does not apply to earnings you withdraw when you take
any of the qualified distributions listed above. In addition,
the 10 percent penalty is also waived for certain other distribution
reasons. But, for these distributions, taxes on any earnings will
apply. Distributions that are subject to taxes (on any earnings
withdrawn) but no penalty include:
What If I Need Access to My Money Now?
A helpful feature of
the Roth IRA is that, fornon-qualified distributions, original
contribution amounts are returned first. Contributions (as opposed
to earnings) are not subject to taxation or the 10 percent IRS
premature-distribution penalty when distributed. In other words,
you can always get back your principal tax free and IRS penalty
free for any reason.
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When Do I Have to Start Taking Distributions
From My Roth IRA?
You never have
to take distributions from your Roth IRA. That's another benefit
of the Roth IRA over traditional IRAs. Assets held in a Roth IRA
are not subject to age 70½ required minimum distributions.
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What Happens in the Event of My Death?
Your named beneficiary(ies)
will receive the entire proceeds of your Roth IRA. The manner
in which your beneficiary(ies) receive the funds is determined
by the election made by your beneficiary(ies) within the guidelines
of the law.
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How Do I Move Funds From a Traditional IRA
to a Roth IRA?
The law only allows
people (single or married) with an MAGI of $100,000 or less to
convert their traditional IRA into a Roth IRA. For a conversion
to a Roth IRA, the amount converted will be subject to full taxation.
However, the funds will not be subject to a 10 percent premature-distribution
penalty. Rollovers from a traditional IRA to a Roth IRA are not
subject to the one rollover per 12-months rule.
Additionally, the law
provides that for conversions to Roth IRAs completed in 1998 the
taxes may be paid ratably over a four-year period. After 1998,
such conversions are fully taxable in the year of the distribution.
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When Is the Contribution Deadline for Funding
a Roth IRA?
Roth IRAs for the taxable
year can be opened and funded any time between Janurary 1 and
the date your tax return is due for the year, excluding extensions.
This is normally April 15 of the following year.
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How Do I Open a Roth IRA?
Simply see any of our
IRA representatives. We will explain the nature of these accounts
in more detail and help you complete the simple forms necessary
to establish your Roth IRA.
