Roth IRA


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Related to Roth IRA: Traditional IRA, Roth 401k

Roth IRA

Individual Retirement Account that allows contributors to make annual contributions and to withdraw the principal and earnings tax-free under certain conditions. Maximum annual contributions are $3,000 per year (phasing up to $4,000 per year in 2005 and $5,000 per year in 2008.

Roth IRA

An investment retirement account in which a worker makes non-tax deductible contributions up to a certain limit throughout his/her working life. Unlike traditional IRAs, withdrawals are tax-free but contributions are not deductible. The limit to annual contributions varies by year according to inflation ($5,000 in 2008 and 2009). Roth IRAs are allowed to invest in securities and, in practice, normally own common stock and certificates of deposit. See also: 401(k).

Roth IRA

A special type of individual retirement account in which contributions are made with aftertax dollars but distributions are tax-free so long as certain requirements including holding period and age are met. All earnings within the account are free of taxation.
Case Study Roth IRAs allow an annual contribution to a retirement account, but unlike a regular IRA the contribution is never tax-deductible. Rather, distributions from a Roth IRA are generally tax-free, so long as certain criteria are met. Individuals and their spouses are eligible to invest in a Roth so long as their adjusted gross income meets stated guidelines. Tax-free withdrawals are permitted if the investor holds the account for at least five years from the date the account was opened and is at least age 59 1/2 . A tax-free withdrawal of up to $10,000 is permitted for a first-time home purchase so long as the required five-year minimum holding period is met. Distributions prior to age 59 1/2 are not taxable only with respect to contributions. In other words, you can always withdraw prior contributions without tax or penalty, a substantial advantage compared to a regular IRA. Withdrawals of interest are taxable and subject to a 10% penalty unless the money is withdrawn because of death, total disability, the purchase of a first home (up to $10,000), higher-education expenses, medical expenses in excess of 7.5% of adjusted gross income, or health insurance premiums for certain unemployed individuals.
Should I choose a regular IRA or a Roth IRA?

The hands-down favorite is a Roth IRA. Now, the money that goes into a regular IRA isn't taxed until withdrawal after age 59 1/2 A Roth IRA is funded with aftertax dollars, but no taxes are levied on the gains when the money is taken out during retirement. One way to look at the tradeoff is to decide whether you'll be in a lower tax bracket in your golden years. If so, you might want to lean toward the regular IRA. However, you will accumulate more savings in a Roth if your tax bracket remains the same or ticks up. The Roth carries other advantages that weigh heavily in its favor. Among them: With a regular IRA you must start withdrawing money at age 70 1/2 . Not with a Roth. You can take out aftertax contributions in a Roth free of tax and penalty (but not the gains) at any time and for any reason. The income eligibility requirements for a Roth IRA are more generous than for the traditional IRA. There are a number of calculators on the Internet for comparing the two products.

Christopher Farrell, Economics Editor, Minnesota Public Radio, heard nationally on Sound Money®

Roth IRA.

A Roth IRA is a variation on a traditional individual retirement arrangement (IRA).

Because contributions are made with after-tax dollars, the Roth IRA allows you to withdraw your earnings completely tax free any time after you reach age 59 1/2, provided your account has been open at least five years.

You may also be able to withdraw money earlier without penalty if you qualify for certain exceptions, such as using up to $10,000 toward the purchase of a first home. And since a Roth IRA has no required withdrawals, you can continue to accumulate tax-free earnings as long as you like.

You can make a nondeductible annual contribution, up to the annual federal limit, any year you have earned income, even after age 70 1/2, though you can never contribute more than you earn. If you are 50 or older, you may also make annual catch-up contributions.

To make a full contribution to a Roth IRA, your modified adjusted gross income (MAGI) must be less than the annual limit set by Congress.

You may make partial contributions on a sliding scale if your MAGI is between the amounts that Congress sets for your filing status. These annual limits are lower if you file as a single than if you're married and file a joint return.

You may also qualify to convert a traditional IRA to a Roth IRA if your MAGI in the year you convert is less than the cap, currently $100,000, which applies whether you are single or married. The amount you're converting is not included in that total.

Roth IRA

Contributions to Roth IRAs, which were introduced in 1998, are not deductible. Earnings grow tax free and qualified withdrawals are also tax free.
References in periodicals archive ?
A "backdoor" Roth IRA contribution, at its simplest, involves making a contribution to a traditional IRA using after-tax dollars and then performing an immediate tax-free Roth conversion.
Today, a Roth IRA conversion will generate taxable income in the year of that transaction, no matter what happens afterwards.
Example 2: Rick Baker, a single taxpayer, must have had MAGI of $120,000 or less in 2018 for a full contribution to a Roth IRA for 2018.
Like spouse beneficiaries, you can also roll over ("convert") non-Roth distributions from an employer plan into an inherited Roth IRA (however, you must do so in a direct rollover).
Although it admitted that the transactions complied with the relevant provisions of the Code, the IRS applied the substance-over-form doctrine to reclassify the commission payments from Summa Holdings to JC Export as dividends to the shareholders that they had contributed to the Roth IRAs. In this view of the transaction, the shareholders had contributed more than $1.4 million to the Roth IRAs in 2008, when neither taxpayer was eligible to make any contributions due to the Roth IRA contribution limits.
Despite the presence of the traditional IRA, the Roth IRA, the 401 (k), the 403 (b), and traditional pensions, planners have found many citizens with insufficient savings for their old age.
Whether the balance in your retirement accounts sits at empty or you're trying to rev up your planning, it may be time to take a Roth IRA for a spin.
Yet, using that same EBRI data sample shows that middle-aged group implemented 182,000 traditional IRA rollovers in 2013, but only 14,000 Roth IRA rollovers in the same year.
For Roth IRA investors, that percentage rose to 80%.
Not every parent can afford to do this, of course -- and there are requirements for opening a Roth IRA that not everyone can meet.
Operationally, the Roth IRA functions as the mirror image of its older sibling, the traditional IRA, which Congress created in 1974.
Unlike a Roth IRA, the Roth 401(k), which was made permanent under the Pension Protection Act of 2006, has no income limit and the plans are "picking up steam every year as more people get to know about them" and more employers start offering them, Slott of IRAHelp.com told ThinkAdvisor in a Thursday interview.