Named for Delaware Senator William Roth, the Taxpayer Relief Act of 1997 established the Roth IRA. A Roth IRA is an Individual Retirement Account (IRA) that allows you to save for retirement on a tax advantaged basis. They allow you to make annual contributions of after tax money and to withdraw principal and earning tax-free for retirement.
A Roth IRA is a special retirement account where you pay taxes on money going into your account and then all future withdrawals are tax free when you follow the rules. In both traditional and Roth IRAs, your money grows tax free while it’s in the account.
Roth IRA Highlights
- You can contribute to a Roth IRA at any age as long as you have earned income from a job.
- You cannot deduct contributions to a Roth IRA.
- If you satisfy the requirements, qualified distributions are tax-free.
- You can make contributions to your Roth IRA after you reach age 70 ½.
- You can leave amounts in your Roth IRA as long as you live.
- You generally must be at least 59-1/2 to make withdrawals without penalty.
- The account must be established for at least 5 years before taking withdrawals.
- If you make above a certain level of income you may not be eligible to contribute (See below)
Roth IRA Contribution Limits
- Under 50 years old: You can contribute up to $5,500.
- Over 50 years old: You can contribute up to $6,500.
Roth IRA Income Limitations and Phase outs
Married filing jointly
- You can make a full contribution if your combined annual income is below $184,000 per year.
- You can make a partial contribution if your combined annual income is between $184,000 and $194,000.
- You cannot make any contributions to a Roth if your combined annual income is above $194,000.
Married filing separately
- You can make a partial contribution if your income is below $10,000
- You cannot make any contributions to a Roth if your annual income is above $10,000.
- You can make a full contribution if your annual income is below $117,000 per year.
- You can make a partial contribution if your annual income is between $174,000 and $132,000.
- You cannot make any contributions to a Roth if your annual income is above $132,000.
Anyone can convert their eligible IRA assets to a Roth IRA regardless of income or marital status. Prior to 2010, only those account owners who had a modified adjusted gross income below $100,000 were eligible to convert. When you convert from a Traditional IRA to a Roth IRA you pay income tax on the contributions. The taxable amount that is converted is added to your income taxes and your regular income rate is applied to your total income.