Roth IRA

by diannejacob on September 13, 2014

A Roth IRA is an individual retirement account that allows you to invest in an investment portfolio that grows tax-deferred and contributes tax-free income. It provides you with the flexibility to pay taxes on your earnings in any tax bracket from zero percent to 39.6 percent.

How much can I contribute to a Roth IRA?

The annual contribution limit for 2013 for a Roth IRA is $5,500, which will be phased out in 2014 and 2015.

If you meet the following guidelines, you can contribute $5,500:

You’re age 50 or older when you begin contributing

You’re unmarried (single and never married) and you file as married filing separately

You’ve lived in the U.S. for at least five of the past seven tax years

You file your tax return with Schedule A. The Roth contribution is treated as a “pre-tax” contribution and is not eligible for the 10% early-withdrawal penalty

The deduction for Roth IRA contributions is calculated as a percentage of the individual’s adjusted gross income (AGI), a lot of people use a roth ira calculator to determine this percentage. A contribution to a Roth IRA is subject to the 10% early-withdrawal penalty. A rollover from a Traditional IRA to a Roth IRA is allowed only if you use the full conversion rules You are considered to be in a “catch-up” position if you are age 50 or older, a full-time student (even if your spouse is also a student), disabled, or you’re not filing a joint tax return with anyone.

To get around this, you can use your RMD to make both your traditional IRA and Roth IRA distributions without a tax penalty. For a complete discussion of this, see the instructions for Form 5498.

If you choose to make both distributions, you’ll be able to roll both of your traditional IRA distributions from your other retirement account to a Roth IRA. You can then roll the remaining traditional IRA distribution from your other retirement account to the Roth IRA. In either case, you’ll still be required to file a distribution from each account to avoid income tax penalties.

Withdrawals from a Traditional IRA

If you withdraw your traditional IRA contribution to a Roth IRA, you’ll no longer be able to withdraw the money until you make your final distribution. If you decide to make a distribution, you may be able to use a traditional IRA to deposit a rollover distribution from your other retirement account. This means that the remaining contributions of the distribution will become part of your other IRA account.

How much is a rollover distribution?

You can make rollover distributions to your Roth IRA, or you can make them to your traditional IRA or to a money market account. You must roll over your distribution to your Roth IRA within three months of the date of the distribution or within one year from the date of the distribution, whichever is earlier. Rollovers must be made to the same IRA as your original distribution.

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