Roth IRA
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Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions are tax free.
How Does It Work
Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income does not exceed the IRS limits. Taxable compensation includes wages, salaries, tips, professional fees, bonuses and other amounts received for professional services. Contributions can be made to your Roth IRA regardless of your age.
How Much Can I Contribute
The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. If contributions are made only to Roth IRAs, your contribution limit generally is the lessor of $5,500 ($6,500 if you are age 50 or older), or your taxable compensation. There are income limitations which can restrict your contribution.
Conversions
You can convert a traditional IRA to a Roth IRA. The amount converted will be included in income. Beginning in 2010, the modified AGI and filing status requirements for converting a traditional IRA to a Roth IRA are eliminated.
Distributions
You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRAs. A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. It is made after the 5 year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and the pay or distribution is made after you reach 59 ½ , is made because you are disabled, is made after you are deceased or qualifies for first time homebuyer treatment.
There are still other “catches” to Roth IRAs. Please contact us before acting to verify you qualify.
The taxpayer should seek advice
Based on the taxpayer’s particular circumstances
From an independent tax advisor
Beucler Company CPA, Inc.
2503 Summit St.
Columbus, OH 43202
(614) 784-1099
Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.
