Roth IRA

A Roth IRA is a type of Individual Retirement Account named for Senator William Roth Jr. of Delaware. The Roth IRA is similar to traditional IRA’s. The major distinction is that Roth IRA contributions are made from earnings that have already been taxed therefore, they are not tax deductible. However, withdrawals up to the amount of the contributions are free from federal income tax and earnings above the contribution amount are usually free from income tax as well. A Roth IRA also has fewer investment restrictions than traditional IRA’s. A Roth IRA account can invest in securities like mutual funds, real estate, common stocks, derivatives, notes, and certificates of deposit. Like traditional IRA’s, capital gains, dividends, and interest are free from taxation.

Are you or someone you know considering a Roth IRA? Contact a Certified Public Accountant to find out if a Roth IRA is right for you and your family today.

There are limits on how much you can contribute to a Roth IRA retirement account, which is based on income and marital status.

Congress has limited contributions to a Roth IRA, based upon income:

• Single filers: Qualify for full contribution if earned income is up to $99,000.
• Single filers: Qualify for partial contribution if earned income is $99,000-$114,000.
• Joint filers: Qualify for full contribution if earned income is up to $156,000.
• Joint filers: Qualify for partial contribution if earned income is $156,000-$166,000.
• Married filing separately: Qualify for full contribution if earned income is up to $0. (If the couple lived together for any part of the year)
• Married filing separately: Qualify for partial contribution if earned income is $0-$10,000. (If the couple lived together for any part of the year)

The Roth IRA is more flexible than traditional IRA’s in many ways. One difference is that if you convert from a traditional IRA and to a Roth IRA, you are allowed to withdraw the total amount of the conversion after the seasoning period of five years is over. When a contributor turns 59.5 or becomes disabled they automatically qualify to withdraw the earnings if the account is seasoned. The holder, spouse, children or parents of the holder of the Roth IRA account can qualify for up to $10,000 of earning withdrawals for the purchase of a primary residence. If one spouse dies, and the couple own individual Roth IRA accounts, the surviving spouse can combine the two accounts without penalty. The Roth IRA is taxed before it is deducted for the retirement account, so it can’t be taxed at a higher rate when withdrawn, should you be in a higher tax bracket after retirement. The Roth IRA does not impose mandatory withdrawals as other types of IRA’s do after age 70.5 or once withdrawals begin after 59.5.

Are you or someone you know considering a Roth IRA? Contact a Certified Public Accountant to find out if a Roth IRA is right for you and your family today.