Roth IRA Help

27 Nov, 2009

Roth IRA Rules- What You Should Know

Posted by: admin In: Roth IRA

Roth IRA rules are a lot more flexible than other investments. You really need to make sure that you understand the right rules for the right investments, because getting them confused is easy. Roth IRA contributions are not tax-deductible, which is one of the biggest differences between these accounts and other IRAs. Tax free withdrawals are offered on these accounts, but only if you follow the rules first and get to a point where you are eligible for them. You need to understand contribution limits ($5,000 and $6,000 for those under and over age 50 respectively in 2010), income limits, and other elements that will determine what you can invest, when you can withdrawal, and other details of your investment.

Every year, the Roth IRA contribution limits will increase in increments of $500 based on inflation. Also, you should understand that you cannot invest more than the maximum to your IRA accounts, no matter how many you have. Plus, if you don’t make that much money, you can only contribute what you make. If you get laid off from your job and only make $3,000 in a year, that’s all that you’re allowed to contribute.

Income limits are also an important part of Roth IRA rules. In 2010, the income limit for those converting to a Roth IRA (previously $100,000) is going to be lifted, allowing higher earners to utilize the Roth for all that it is worth. Contribution limits are completely different, and include the following:

-Single or head of household filers must make less than $105,000 to make full contribution. Partial contributions can be made up to $120,000 of income, but anything over that disallows you from contributing to a Roth IRA.

-Married joint filers must make less than $166,000 to contribute fully. Anything under $177,000 can be eligible for partial contribution, but anything more than this will take away the ability to contribute.

-Married filing separately and living together at any point in the year enables you to make a full contribution when your MODIFIED AGI is $0. If yours is between $0 and $10,000, you can make a partial contribution. If your modified AGI is over $10,000 in this situation, you can NOT contribute.

Withdrawals on a Roth IRA can start any time after age 59 ½ as long as the money has been invested for 5 years. Early withdrawals are subject to 10% penalty, but there is no penalty or minimum withdrawal amount that must be taken like typical IRA accounts have. This is often why Roth IRA rules are seen as more flexible.

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