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Roth IRAs
The Roth IRA differs from a Traditional IRA in that funds contributed are not tax deductible. These contributions consist of after-tax dollars. IRA earnings always grow tax deferred. When funds are withdrawn from a Roth IRA, interest earned is tax-exempt as long as the Roth IRA holder meets certain criteria at the time of withdrawal.
- Investors would benefit from a Roth IRA if they:
- Expect to be in the same or an even higher tax bracket at retirement age,
- Already contribute to a 401k or other company plan, or
- Want to continue to contribute to an IRA Plan after age 70 ½.
- Eligibility to contribute to a Roth IRA is based on your Modified Adjusted Gross Income (MAGI). You may be actively contributing to a 401(k) Plan and also be eligible to contribute to a Roth IRA.
- Contributions can be made up until your tax-filing deadline, generally April 15, for a prior year contribution.
- Eligible individuals may contribute the lesser of the annual contribution limit or 100% of their earned income to a Roth IRA.
- Individuals over age 70 ½ may continue to make contributions to a Roth IRA as long as they have earned income.
- You may contribute to both a Traditional and a Roth IRA for a combined total up to the annual contribution limit.
| 2008 |
$5,000 |
$6,000 |
| 2009 |
$5,000 |
$6,000 |
Contribution Table
| Single Individual |
- Less than $105,000
- $105,000 to $120,000
- Greater than $120,000
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- Less than $101,000
- $101,000 to $116,000
- Greater than $116,000
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- Contribution amount can be up to annual limit
- Contribution amount decreases as income increases
- Customer is not eligible to contribute
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Married Individual
Filing Jointly |
- Less than $166,000
- $166,000 to $176,000
- Greater than $176,000
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- Less than $159,000
- $159,000 to $169,000
- Greater than $169,000
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- Contribution amount can be up to annual limit
- Contribution amount decreases as income increases
- Customer is not eligible to contribute
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Married Individual
Filing Separately |
- Less than $10,000
- Greater than $10,000
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- Less than $10,000
- Greater than $10,000
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- Partial Contribution
- Not Eligible to contribute
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- Individuals who reach age 50 or older before the end of the taxable year may be eligible to contribute an additional $1,000 to a Roth IRA as a "catch-up" contribution.
- Participants in a Roth IRA Plan do not have a required minimum distribution at age 70½. You can continue to make contributions after the age of 70 ½ as long as you have earned income.
- Qualified distributions are tax free. In order to avoid taxes and IRS penalties on a withdrawal from a Roth IRA, you must meet the following criteria:
- Hold the account for at least five years and one of the following:
- Age 59 ½
- Purchasing a first home
- Disabled
- Death of participant
If you do not meet the above criteria, the withdrawal is considered “non-qualified.” Any portion of the non-qualified withdrawal that represents earnings will be included as income for tax purposes. In addition, the earnings included as part of a non-qualified withdrawal will be subject to a 10% IRS early distribution penalty.
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