IRA Rules

Archive for the ‘Roth IRA Rules’ Category

Roth IRA Rules (Continued)

Recap of major differences between Roth IRA rules and traditional IRA rules:

While traditional IRA rules allow eligible individuals with any income size to contribute to traditional IRA individual retirement accounts, Roth IRA rules do not. Simply put, if you earn a lot of money, then you can set up a traditional IRA but not a Roth IRA individual retirement account.

Another major difference between Roth IRA rules and traditional IRA rules is the age eligibility. Anyone can open a Roth IRA account providing he or she satisfies the income limit requirement under Roth IRA rules, whereas you have to be under 70½ to contribute to a Traditional IRA account.

Roth IRA rules on contributions

Roth IRA rules are very specific about how much income, called modified adjusted gross income or MAGI, you are allowed to make before you are no longer eligible to set up a Roth IRA individual retirement account. The table below shows modified adjusted gross income limits and how much you are allowed to contribute to a Roth IRA account.

Roth Ira Rules of deductible contribution

Roth Ira Rules do not permit deductible contributions to Roth IRA individual retirement account.

Roth Ira Rules for non-deductible contributions

Unlike contributions to Traditional IRA accounts, only non-deductible contributions to Roth IRA accounts are permitted. See “Total Contributions” for contribution limits to Roth IRA accounts under Roth Ira Rules.

Roth Ira Rules for catch up contributions for Roth IRA

Catch up contributions for Roth IRA individual retirement accounts, under the Roth Ira Rules, are available for individuals age 50 or over. Roth IRA account owners of 50 and over may make additional catch-up IRA contributions as specified by Roth Ira Rules and other Ira Rules. The maximum contribution limit is increased by $1,000 for year 2006 and thereafter. The contribution limit for catch up IRA contribution under both traditional Ira Rules and Roth Ira Rules used to be just $500.

Contribution Deadline for Roth IRA

Under the Roth Ira Rules, you may contribute or put money into your Roth IRA accounts no later than tax filing due date. No extensions.

Many investors say that among all the IRA rules, the Roth IRA rules are the best and most special. Others may disagree in the beginning but, for most, when they come to understand the Roth IRA rules, they change their mind and become in favor of Roth IRA rules and opening Roth IRA individual retirement account. Let us examine key Roth IRA rules below and you can make up your mind if you like the Roth IRA rules better than traditional IRA rules and other IRA rules.

Roth IRA Eligibility – who is eligible to open a Roth IRA account?

Similar to traditional Ira Rules, under Roth IRA rules, anyone with earned income (no age restriction) whose AGI (Adjusted Gross Income) is not in excess of $160,000 (joint returns) or $110,000 (single returns) can set up a Roth IRA individual retirement account.

Establishment deadline for Roth IRA – when is the deadline for setting up a Roth IRA account?

Just like with Traditional IRA accounts, under Roth Ira Rules, you must establish the Roth IRA individual retirement account by tax filing due date, no extensions.

How to set up a Roth IRA individual retirement account?

Following the Roth Ira Rules, to set up a Roth IRA individual retirement account, as with Traditional IRA individual retirement account, you need to go to a financial institution such as a brokerage firm or a bank. You will open up an IRA account at the financial institution and put money in (contribute) no more than the IRA Contribution Limit under the current Roth Ira Rules.

Example of Roth Ira Rules on contribution limits

For example, Roth Ira Rules allow a contribution of no more than $4,000 a year for individuals. However, in the case of a Roth IRA, it is up to you to know if your income falls within the level allowed. Your accountant or financial advisor may be able to help you calculate your AGI (Adjusted Gross Income). Again, you can set up a Roth IRA account online or over the phone.

The Roth Ira Rules of Roth IRA Contributions

Total Contributions – of Traditional IRA accounts, Roth IRA accounts, and other IRA accounts

As with Traditional IRA individual retirement accounts, under the Roth IRA Tax Rules, Roth IRA account owners can contribute:

• 100% of compensation or $4,000 (for 2005 through 2007) per individual, whichever is less.
• $8,000 (for 2005 through 2007) contribution for married filing jointly. Separate IRA accounts required; neither IRA can exceed $4,000 annually.

The $4,000/$8,000 (for 2005 through 2007) limits apply in the aggregate to both Traditional and Roth IRA individual retirement accounts. Contribution limit is phased out for AGIs from $150,000 to $160,000 (joint returns) and from $95,000 to $110,000 (single returns).

Roth IRA retirement account has been among the most favorable ways to save for retirement. For savvy investors, Roth IRA retirement account is the way to invest. For newer investors, the concept of Roth IRA and Roth IRA Rules seem complicated at first. Since Roth IRA Rules are very tax favorable for Roth IRA owners, sometimes it is hard to believe that such tax breaks exist. 

What is the difference between a Roth IRA and a traditional IRA?

A Roth IRA individual retirement account is defined by the Roth IRA Rules associated with: 

• eligibility of opening a Roth IRA

The above list is some of the key areas which distinguish a Roth IRA individual retirement account from a Traditional IRA individual retirement accounts and other types of IRA accounts. 

Why is a Roth IRA individual retirement account special and popular?

A Roth IRA individual retirement account is popular and special mainly because of the: 

• Roth IRA Tax Rules that are so unique compared to other Ira Rules, including traditional Ira Rules, and

These two factors of Roth Ira Rules are responsible for most of the hypes around Roth IRA individual retirement accounts. No other types of individual retirement accounts offer the same tax treatment benefits that Roth Ira Rules allow. 

Most other IRA will allow a tax deductible contribution into the individual retirement account. But, when money is withdrawn from the account, you will pay taxes on all the money distributed. The Roth IRA, however, falls under a different Ira Rules. The Roth Ira Rules allow retirees to distribute money totally tax free. 

Roth Ira Rules and more of what make Roth IRA individual retirement account special will be discussed in the Roth Ira Rules section.