Roth IRA

Summary

A Roth IRA is an individual retirement plan that, except as explained in IRS Publication 590, is subject to the same rules that apply to a Traditional IRA. To be a Roth IRA, the account must be designated as a Roth IRA when it is opened. Unlike a Traditional IRA, you cannot deduct contributions to a Roth IRA; but, if you satisfy the requirements, qualified distributions are tax-free. Also, contributions can be made to your Roth IRA after you reach age 70½, and you never have to withdraw funds in your Roth IRA.

Open a Roth IRA

Contributions

Generally, you can contribute to a Roth IRA if you have taxable compensation and your Modified AGI is less than:

  • $188,000 for married filing jointly or qualifying widow(er)
  • $127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year
  • $10,000 for married filing separately and you lived with your spouse at any time during the year
  • You can contribute to a Roth IRA for your spouse up to the spousal IRA limit, provided you file jointly and your Modified AGI is less than $188,000. Compensation is defined for the purposes of this section as it is defined for a Traditional IRA.

More on Contribution Limits

Move Assets Into a Roth IRA

You may be able to convert amounts from either a Traditional, SEP, or SIMPLE IRA into a Roth IRA. You also may be able to roll over amounts from a qualified retirement plan to a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA.

Most of the rules for conversion of funds into a Traditional IRA apply to a Roth IRA as well, with the exception of the one-year waiting period between rollovers. Choose one of four ways to convert funds:

  • Rollover – receive a distribution from a Traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution
  • Trustee-to-trustee transfer – direct the trustee of the Traditional IRA to transfer an amount to the trustee of the Roth IRA
  • Same trustee transfer – if the trustee of the Traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount to the Roth IRA
  • Rollover from employer’s plan into a Roth IRA – this includes funds in your (or your deceased spouse’s) qualified pension, 401(k), profit-sharing or stock bonus plan, annuity and tax-sheltered annuity plan and governmental-deferred compensation plan

Move Assets From a Roth IRA

As with a Traditional IRA, you can withdraw, tax-free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. However, rollovers from retirement plans other than Roth IRAs are disregarded for  purposes of the Traditional IRA’s 1-year waiting period between rollovers. A  rollover from a Roth IRA to an employer retirement plan is not allowed.

Taxation of Distributions

You generally do not include as gross income in your tax return qualified distributions from your Roth IRA(s) or distributions that are a return of your regular contributions. You also do not include distributions that you roll over tax-free into another Roth IRA. However, you may have to include part of other distributions in your income. Refer to IRS Pub. 590 Distributions

Qualified Distributions

A qualified  distribution is any payment or distribution from your Roth IRA that meets the following requirements:

  1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit.
  2. The payment or distribution is:
    • Made on or after the date you reach age 59½
    • Made because you are disabled
    • Made to a beneficiary or to your estate after your death
    • One that meets the requirements for the first-time homebuyers’ allowance

Minimum Withdrawals Do Not Apply to Roth IRAs

You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to Traditional IRAs do not apply to Roth IRAs while the owner is alive.

Disclaimer

The content provided on this page is for informational purposes only and does not constitute a complete analysis of the rules governing the creation and use of a Roth Individual Retirement Account (IRA). It is intended to provide an overview only of the benefits, eligibility requirements, and funding limitations of Roth IRAs. For complete details regarding  this type of savings plan, including definitions of a qualified compensation, distributions, and tax reporting, refer to IRS Publication 590 Roth

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