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Important Facts About the Roth IRA

  • Contributions are made only on a non-deductible basis – the tax benefit is realized when funds are withdrawn.
  • Contribution limits are adjusted annually:
Year Age 49 and below Age 50 and above
2005 $4,000 $4,500
2006–2007 $4,000 $5,000
2008 $5,000 $6,000
  • The Roth IRA is only available to those whose income is below a certain level:
    • Single filers with an income of up to $95,000 qualify for a full contribution; incomes of between $95,000-$110,000 qualify for partial contribution.
    • Joint filers with an income of up to $150,000 qualify for a full contribution; incomes of between $150,000-$160,000 qualify for partial contribution.
  • Contributions are permitted after age 70.5 as long as the individual or the individual's spouse has earned income.
  • There is no requirement that withdrawals commence at age 70.5. Contributions are not tax deductible but are not subject to federal income tax on withdrawal.
  • Earnings accumulate tax-deferred and may be withdrawn tax-free if:
    1. The withdrawal occurs more than five years after the individual first contributed to the Roth IRA; and
    2. The individual is at least 59.5 years old, disabled, dead, or the funds are used to purchase a first home.
  • The 10% premature distribution tax penalty for withdrawals of earnings before age 59.5 will be waived for qualified higher education expenses, first-time home purchases, disability, death and certain medical expenses.

Converting from a Traditional IRA to a Roth IRA

Taxpayers with adjusted gross incomes not exceeding $100,000,whether single or joint filers, can roll over assets from a traditional IRA into a new Roth IRA. Once rolled over, these assets continue to accumulate tax-deferred until withdrawn. Income taxes will be imposed on the taxable amount that is rolled over, but there is no premature distribution penalty.

Can I have both?

Individuals can have both a traditional IRA and a Roth IRA, but they cannot contribute more than the combined maximum to these accounts (for example, in 2006 an individual age 49 or below may contribute a total of $4,000 to both IRA accounts, not $4,000 for each account). Individuals who are not eligible for deductible contributions to a traditional IRA or are not eligible for a Roth IRA may still make nondeductible contributions to a traditional IRA.


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