IRA Roth Accounts
What is a Roth IRA?
The Roth IRA is a unique, tax-advantaged way for investors to save for
retirement. Although contributions are not tax deductible, withdrawals are
tax-free - as long as they are made after age 59 and the account has been in
existence for at least five years. This allows your earnings to compound free of
taxes with no future income tax consequences. Of course, Roth IRAs may not be
suitable for all investors - you'll need to consider your own personal financial
What the the advantages of a Roth IRA?
Roth IRAs can provide a tax-free source of retirement income. Contributions to a
Roth IRA are not deductible, but withdrawals - including any earnings - are
generally free from federal income taxes. Roth distributions are tax-free if you
begin withdrawals at least five years after establishing the account, and you
are at least age 59 at the time of the withdrawal; or you are using the funds
for the purchase of a first home or you are disabled or deceased.
Unlike traditional IRAs, Roth IRAs allow you to make contributions
after age 70.
While a Traditional IRA
requires minimum distributions starting on April 1 of the year after you reach
70, there are no minimum required distributions with a Roth IRA.
Roth IRA Contribution Limits
The chart below shows your total annual contribution limits for all IRAs.
Your total annual contribution to all IRAs (including
Traditional IRAs) may not exceed the lesser
of: your age-based limit or 100% of your earned income.
Below Age 50
Age Over 50
Adjusted Gross Income (AGI) Limits
For single filers, the AGI limit is up to $95,000 for 2006 and $99,000 for
2007 ($95,000-$110,000 in 2006 and $99,000-$114,000 in 2007 for a partial
For joint filers, the AGI limit is up to $150,000 for 2006 and $156,000 for 2007
($150,000-$160,000 in 2006 and $156,000-$166,000 in 2007 for a partial
Roth IRA Conversions
You may convert a traditional IRA to a Roth IRA in any year your AGI doesn't
exceed $100,000, provided your tax status is not "married filing separately."
However, the amount you convert from a traditional IRA to a Roth IRA is
generally considered part of your taxable income for the year of conversion.
However, you may incur this penalty if you subsequently withdraw converted funds
from the Roth IRA before age 59 and sooner than five years after establishing
your Roth IRA.
Contact a financial professional
or tax adviser for more detailed information on conversion-related issues.
You don't have to choose one type of IRA over the other. You may have both a
traditional IRA and a Roth IRA, contributing to either or both whenever you