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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 When funds are withdrawn from a Roth IRA, interest earned is tax-exempt as long as the Roth IRA holder meets certain criteria at the time of withdrawal.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.
| Year |
Annual Contribution Limit |
| 2007 |
$4,000 |
| 2008 |
$5,000 |
| 2009 and after |
$5,000 plus cost of living adjustments |
Contribution Table
| If You are: |
And Your 2007 Modified Adjusted Gross Income (MAGI) is: |
And Your 2008 Modified Adjusted Gross Income (MAGI) is: |
Then: |
| Single Individual |
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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 |
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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 |
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- 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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© Copyright 2008 Citizens Financial Group. All rights reserved.
Citizens Bank is a brand name of RBS Citizens, N.A. and Citizens Bank of Pennsylvania. Citizens Bank is a division of RBS Citizens, N.A. and Citizens Bank accounts and other RBS Citizens, N.A. accounts are not separately insured by the FDIC. Citizens Bank of Pennsylvania is not part of RBS Citizens, N.A.
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