A Roth IRA is a special savings plan authorized by the Federal government to help you accumulate funds for your retirement. Contributions are nondeductible but all withdrawals, including earnings, are tax-free if the account has been open for five years and the account holder is 59½ or older.
There are two requirements for eligibility to make regular tax-year contributions to a Roth IRA:
An individual can contribute up to a limit set by the Federal government. Consult with a tax advisor for more information.
The fact that you participate in an employer-sponsored retirement plan does not exclude you from making a non-deductible contribution to a Roth IRA.
All the earnings you accumulate in your Roth IRA remain tax sheltered. If certain criteria is met to enjoy tax-free and penalty-free distributions.
No. You can contribute any amount your budget allows, either in one or more contributions. In fact, if you choose, you need not make any contributions in a given year.
IRS penalty-free and tax-free withdrawals of your contributions are permitted at any time. Tax-free withdrawals of earning are permitted after age 59½, in the event of death or total disability, or as a qualified first-time home buyer (up to $10,000.00). In order to be tax-free, earnings must have remained in the account for a five-year period beginning with the first taxable year for which a contribution was made. There is no mandatory age requirement for distributions and funds may remain in the account during the account owner’s lifetime. The financial institution may impose a penalty.
There could be a 10% penalty for withdrawing all or any part of the earnings. Taxable distributions are not subject to the 10% early withdrawal penalty if it's been at least five years since your first contribution to a Roth IRA and if the individual is 59½, deceased, disabled, or until age 59½, whichever comes later, or for college expenses, first-time home purchase up to $10,000.00, certain medical expenses, and certain other uses. The financial institution may impose a penalty also.
Taxes are never paid on the original contributions which are not tax deductible in the year of your contribution. Taxes may have to be paid on withdrawals of earnings which have not met the IRS criteria (five years since first contribution and age 59 1/2 or permanent disability, death or first-time homebuyer).
Yes, a Traditional IRA can be converted to a Roth IRA.
Yes, you may transfer or rollover from one Roth IRA to another Roth IRA tax-free and regardless of your adjusted gross income. Rollovers from one Roth IRA to another Roth IRA are limited to one time per year tax-free.
No. The amount you contribute to your employer-sponsored plan will not be affected by your Roth IRA contribution.
Yes. When you die, the entire proceeds can be passed on tax-free to your beneficiaries, providing your Roth IRA meets the five-year test.
You can open or make contributions to your Roth IRA any time up to and including the due date of your tax return for the previous tax year, normally April 15th.
The information contained on this website is not intended to provide specific advice or recommendations for any individual. We suggest that you consult your attorney, accountant, tax or financial adviser with regard to your personal situation.
