With a Roth IRA, your contributions are not deductible from your gross income on your federal income tax return. The earnings that accumulate on your contributions grow tax-deferred. Earnings from a Roth IRA cannot be tapped until you reach age 59½, or you will incur tax penalties. Unlike Traditional IRAs, there is no minimum age by which distributions must begin. You can also continue contributing money to the Roth IRA for as long as you have earned income. You can withdraw the money you contribute at any time without tax consequences, but not the earnings. However, you won’t owe federal income taxes or penalties on the earnings you withdraw as long as:
- Your Roth IRA meets a five-year holding-period requirement; and
- You’re at least 59½ years of age when you withdraw the money or you’re using that withdrawal to help pay for a qualified, first-time home purchase. Withdrawals due to death or disability are also tax-free and penalty-free after the five-year period.
There are income limitations associated with a Roth IRA depending on your Modified Adjusted Gross Income (MAGI) and filing status. If you do not qualify for a full contribution to a Roth IRA, you can contribute the difference to a Traditional IRA. Each year you can contribute to both types of IRAs as long as you don’t exceed the total annual current-year contribution limit or 100% of compensation, whichever is less.
Roth IRA Contribution Limits
The following chart summarizes contribution and catch-up limits for Roth IRAs.
|Year||Limit if under age 50||Limit for age 50+|
|2013 - 2014||$5,500||$6,500|
Deadlines: You can contribute to your IRA from January 1 until your tax filing deadline for that year, excluding extensions (usually this is April 15).
Am I Eligible?
To contribute to a Roth IRA, you must have earned income (compensation). The following table shows how the MAGI on your federal income tax return determines how much you can contribute to a Roth IRA each year:
|Filing Status||2014 MAGI||Allowable Contribution|
|Single or Head of Household||Up to $114,000||Full contribution|
|More than $129,000||Not eligible|
|Married Filing Jointly||Up to $181,000||Full contribution|
|More than $191,000||Not eligible|
|Married Filing Separately||N/A||Full contribution|
|More than $10,000||Not eligible|
Western & Southern Life does not provide tax or legal advice. Please contact your tax or legal advisor regarding your situation.
*Contribution rates per Internal Revenue Service at www.IRS.gov.