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Roth IRA

A Roth IRA is an account set up to save for retirement that offers special tax advantages.  These include tax-deferred earnings, tax-exempt earnings for qualified distributions, and additional tax credit for qualifying individuals.  All Roth IRA contributions are after-tax dollar contributions and are not eligible for an income tax deduction.  However, when IRA owners take distributions from their Roth IRA the earnings are tax free. 

Who can contribute to a Roth IRA?
Any individual can contribute to a Roth IRA if they meet certain eligibility requirements and have earned income.  Earned income is described as compensation from personal services rendered including salary, fees, bonuses, and commissions for personal service.  See chart below to view eligibility requirements for 2013 and 2014.

How much can an individual contribute to their Roth IRA?
How much an individual can contribute to their Roth IRA depends on their MAGI.  The maximum amount an individual can contribute to their IRA in 2013 and 2014 is $5,500 if their MAGI is below the lower limit of the applicable phase-out range.  If the IRA owner’s or couple’s MAGI falls within the applicable phase-out range, the eligible contribution amount for each individual is reduced.  If the IRA owner’s or couple’s MAGI is equal to or exceeds the upper limit of the applicable phase-out range, the individual is ineligible to contribute to a Roth IRA. 


Eligibility Requirements for Roth IRA Contributions
in 2013
IF you have taxable compensation and your filing status is...AND your modified AGI is...THEN...
Married filing jointly or qualifying window(er)
less than $178,000
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
at least $178,000 but less than $188,000
the amount you can contribute is reduced
$188,000 or more
you cannot contribute to a Roth IRA
Married filing separately and you lived with your spouse any time during the year
zero (-0-)
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
more than zero (-0-) but less than $10,000
the amount you can contribute is reduced
$10,000 or more
you cannot contribute to a Roth IRA
Single, Head of Household, or Married Filing Separately and you did not live with your spouse at any time during the year
less than $112,000
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
at least $112,000 but less than $127,000
the amount you can contribute is reduced
$127,000 or more
you cannot contribute to a Roth IRA


Eligibility Requirements for Roth IRA Contributions
in 2014
IF you have taxable compensation and your filing status is...AND your modified AGI is...THEN...
Married filing jointly or qualifying window(er)
less than $181,000
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
at least $181,000 but less than $191,000
the amount you can contribute is reduced
$191,000 or more
you cannot contribute to a Roth IRA
Married filing separately and you lived with your spouse any time during the year
zero (-0-)
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
more than zero (-0-) but less than $10,000
the amount you can contribute is reduced
$10,000 or more
you cannot contribute to a Roth IRA
Single, Head of Household, or Married Filing Separately and you did not live with your spouse at any time during the year
less than $114,000
you can contribute up to $5,500 ($6,500 if you are age 50 or older)
at least $114,000 but less than $129,000
the amount you can contribute is reduced
$129,000 or more
you cannot contribute to a Roth IRA

What types of contributions can individuals make to a Roth IRA?
An individual may make a regular, spousal, catch-up, rollover, recharacterization, conversion, and transfer contributions.  An IRA holder must make a contribution by the due date of their federal income tax returns, not including extensions, for that tax year, usually April 15.

IRA beneficiaries
An individual can elect two different kinds of beneficiaries, primary beneficiaries and contingent beneficiaries.  Primary beneficiaries are individual or entities intended to receive the IRA assets upon the death of the IRA owner.  Contingent beneficiaries are individuals or entities intended to replace the primary beneficiaries, but only if all the primary beneficiaries die before the IRA owner.  If multiple beneficiaries are named, each beneficiary will receive an equal share unless otherwise designated to financial organization.  IRA owners may elect to change beneficiaries at anytime.

When can individuals take distributions from their Roth IRA?
An individual can make a tax-free and penalty-free qualified distribution from their Roth IRA if they meet the five-year waiting period and have attain the age 59 ½ years, death, disability, or are a first-time homebuyer.  An individual can take a nonqualified distribution but may be subject to tax and a penalty.  If an owner takes out only the amount they contributed they are not subject to tax or early distribution penalty tax.  Any distribution that exceeds what they contributed will be subject to tax and a 10% early distribution penalty tax. Unlike a Traditional IRA, individuals are never required to take a required minimum distribution when they reach the age of 70 ½.