Roth IRA

The Economic Growth And Tax Relief Reconciliation Act of 2001 (EGTRRA) has helped more people than ever before take advantage of the incredible tax advantages available through IRAs:

• Contribution limits have increased
• "Catch-up" contributions were added for individuals who attain age 50 before the end of the taxable year
• It's easier to shift assets between plans
• Rollovers are easier
  

A Roth IRA, named for Sen. William Roth, Jr., former chairman of the Senate Finance Committee, allows you to withdraw funds you've saved tax-free, if the account has been open for at least five years and you're at least 59 1/2 when you start to withdraw money. Contributions to a Roth are not tax deductible.

Who can contribute to a Roth IRA?

Unlike the Traditional IRA, there is no 70½ age limit on making contributions. You simply need to have earned income equal to the amount you contribute up to a maximum amount set each year.

Single tax filers may contribute up to the maximum allowable per year if their modified adjusted gross income (MAGI) is less than $101,000.

If a single tax filer's MAGI is between $101,000 and $116,000, they may contribute a reduced amount adjusted for their income.

Married couples filing jointly may each contribute up to the maximum allowable if their MAGI is less than $159,000. Contributions for joint filers are reduced for MAGI's between $159,000 and $169,000.

Roth IRA contributions may not be made by single tax filers with MAGI of more than $116,000, or couples with MAGI of more than $169,000.

How much can you contribute?

The total annual contribution permitted to all IRA accounts (Traditional IRA and Roth IRA) is:

• 2005-2007: $4,000 for individuals ($8,000 for married couples)
• 2008 and beyond: $5,000 for individuals ($10,000 for married couples)
  

Beginning in 2009, the maximum contribution amount will be indexed for cost-of-living adjustments (COLA) in $500 increments.

Individuals who attain the age of 50 before the end of the taxable year may be eligible to contribute an additional amount to a Traditional and/or Roth IRA as a catch-up contribution as follows:

• 2002-2005: $500
• 2006 and beyond: $1,000

When can you use your Roth IRA assets?

If you satisfy two conditions, you may make tax-free and penalty-free withdrawals from your Roth IRA. First, your Roth IRA must have been open for a minimum of five years. Second, the withdrawal must be made because of the occurrence of one of the following events:

• Age 59½
• Death
• Disability
• First home purchase
  

Distributions which meet the above requirements are referred to as "qualified distributions." While you may take distributions from your Roth IRA at any time, distributions which are not qualified distributions may be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your aggregate contributions to Roth IRAs.

Can you move funds from your Traditional IRA to a Roth IRA?

Yes. There are specific rules that govern the process of rolling over or converting funds from a Traditional IRA to a Roth IRA. Some of these rules include:

• Your MAGI must be $100,000 or less.
• If you are married, you must file a joint income tax return.
• You must pay taxes on all the pre-tax dollars you move.
• The conversion must be completed within 60 days.
• Consult your tax advisor to determine whether moving your funds is beneficial to you.

Are you required to take funds from your Roth IRA?

Unlike the Traditional IRA, there are no required minimum distributions at age 70½. Your earnings can continue to grow until you need them. There are, however, special requirements when these plans pass to your beneficiaries.