ROTH IRAs
Questions and Answers
· What is a Roth IRA?
Introduced in 1998, the
Roth IRA is the opposite of the traditional deductible IRA. With a
traditional deductible IRA, you may deduct contributions, but all
withdrawals are fully taxable. With a Roth IRA, you receive no
up-front deduction for annual contributions. But, if you meet the
tax law requirements for withdrawals, you may take all money from the
Roth IRA tax-free (meaning all original contributions and the earnings
on the contributions).
·
How much
can you contribute to a Roth IRA?
Effective in 2008, you may make up to a
$5,000 contribution to a Roth IRA for a single individual and $10,000 for
married couples. If you are age 50 or older, you may make an
additional $1000 "catch-up" contribution. You must earn compensation to contribute to a
Roth. This compensation can be in the form of wages, commissions,
tips, or other amounts in return for personal services. Also,
taxable alimony and separate maintenance payments are treated as
compensation for IRA purposes.
·
May I contribute to both a
deductible and Roth IRA in the same year?
If you are eligible to
contribute to both types of IRAs, you may do so. However,
contributions to all of your personal IRAs for a tax year cannot exceed
$5,000 or the total of your compensation.
· Are there any age limits
for contributing to a Roth IRA?
No. A contribution
to a Roth account can be made by any aged person as long as he/she is
otherwise eligible.
· What are the income limits
for making Roth IRA contributions?
A single or head of
household individual may make a full contribution if his/her AGI is
$101,000 or less, a partial contribution if AGI is between $101,000 and
$116,000, and no contribution if AGI exceeds $116,000.
A married filing jointly
couple may make a full contribution if their AGI is $159,000 or less, a
partial contribution if AGI is between $159,000 and $169,000, and no
contribution if AGI exceeds $169,000.
· When do I have to start
taking distributions from my Roth IRA?
You never have to take
distributions from your Roth IRA. Assets held in a Roth account
are not subject to the age 70 ˝ minimum distribution requirements.
· 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) receives the funds is determined by the
election made by your beneficiary(ies) within the guidelines of the law.
· How are distributions from
a Roth IRA treated for tax purposes?
Qualified distributions
from a Roth IRA are tax-free. A qualified distribution is taken
after:
-
You’ve had the Roth IRA
for five tax years, and
-
On or after the date you
reach age 59 ˝, due to death or disability, or for qualified first-time
homebuyer expenses.
Any other Roth
distributions are taxable to the extent of the account earnings.
Also, unless an exception applies, the 10% early distribution penalty
tax will also be imposed on the taxable amount.
· May I move funds from a
traditional IRA to a Roth IRA?
The law allows people
(single or married) with modified adjusted gross income (MAGI) of
$100,000 or less to convert or roll over their traditional IRA into a
Roth IRA. The MAGI does not include the IRA that is being rolled
over. The rollover amount will be fully taxable in the year of
conversion but will not be subject the 10% premature distribution
penalty.
· Should
I open separate accounts for my Roth contributions and Roth
conversion funds?
Yes, you should have
separate accounts for each Roth rollover as well as one for
contributions. The law differs as to distribution requirements for
rolled over funds and contributions. If the funds are co-mingled,
the first withdrawals will be treated as coming from the latest
rollover. This could force the taxpayer to pay penalties that
would not have to be paid if the funds were kept separate.
Weekly Tax Tips |
Monthly On-Line Advisor |
2009 Tax Planning Guide |
2006Tax Law Summary
2007Tax QuikGuide
|
2008 Tax Fee Estimate |
Roth IRAs Questions and Answers |
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Certified Public Accountants
4084 University Drive, Suite 200,
Fairfax, Virginia 22030-6800
T 703.591.9393 - F 703.591.7640
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Last modified - 11.18.08 |
