Roth IRA Rules- Know Before You Invest

January 13th, 2010 by David Leave a reply »

Understanding the rules is the key to making any investment a good investment. Roth IRA rules are fairly simple, which is what makes the investment a popular one. However, you should still make sure that you understand them fully before you get in over your head with retirement accounts. Here are the main rules and guidelines that you need to know about with this specific type of investment:


According to Roth IRA rules, anyone can invest in an account regardless of age or other factors. The only requirement for eligibility is taxable income. This includes salaries, tips, fees, bonuses, wages, and other earnings that you are paid for services to others. The limits of what you can contribute and other regulations will be considered next.

Compensation Guidelines

There are limits as to who can contribute what when it comes to the Roth IRA rules. Your AGI or Adjusted Gross Income has to be within a certain amount in order to contribute, and this amount changes from one year to the next. In some instances, you cannot contribute at all. In other situations, your contributions will be limited by the amount of money that you make. If you do not make a lot of money, you will be able to contribute the maximum amount.

Contribution Limits

The limits on what you can contribute are different from one year to the next. They are also followed on a ‘use it or lose it’ basis. That means that you either invest the full $5,000 for 2009 or you don’t. You can’t add it to your contributions in 2010. The full amount for 2009 is $5,000 with a $1,000 catch-up added for those over the age of 49. In 2010, those numbers will increase depending upon inflation.

Transfer Limits

You are entitled to one rollover every calendar year with your Roth IRA. If you wish to make additional transfers, you can do a trustee transfer, which means that you have the trustee transfer the money to the new trustee directly, with no involvement on your part. You can also transfer funds to another account within the same firm or institution that has control of your Roth IRA.

Distribution and Withdrawal

Once you have reached age 59 ½ and your money has been invested for at least five years, you are entitled to take distributions from your account as you desire. Any withdrawals outside of these circumstances might be subject to a 10% penalty unless you meet certain exceptions.


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