A Roth IRA is an individual retirement plan that does not allow tax-deductible contributions but does allow for tax-free withdrawals provided specific requirements are met.

  1. Eligibility - Anyone with taxable compensation whose modified adjusted gross income is below specified limits may contribute to a Roth IRA. The modified AGI limits for contributing for 2014 (adjusted annually):
    • Married filing jointly: $188,000.
    • Married filing separately (if lived with spouse during year): $10,000.
    • Single, head of household or married filing separate (if did not live with spouse at all during year): $127,000.
  2. Annual contributions limits - Generally same as traditional IRA, with contributions to both traditional and Roth IRAs combined to calculate an overall IRA contribution limit that is the lesser of:
    • $5,500 ($6,500 if 50 or older) or
    • Taxable compensation.
    • Contribution limits for a Roth IRA reduced within certain modified AGI ranges:
      • Married filing jointly: $181,000-$191,000.
      • Married filing separate (and lived with spouse at least part of year): $0-$10,000.
      • Single, head of household and married filing separate (and did not live with spouse at all during year): $114,000-$129,000.
  3. Contributions deadline - Due date of tax return for that year (usually the following April 15).
  4. Roth IRA conversions - Under certain conditions, part or all of a traditional SEP or SIMPLE IRA may be converted to a Roth IRA to allow the account holder or beneficiary to take advantage of the tax-free withdrawals allowed under a Roth IRA.
    A conversion may be accomplished by a rollover of assets directly between the trustees of the Traditional and Roth IRAs, or by the IRA owner distributing the assets from the Traditional, SEP or SIMPLE IRA and rolling over the amount to the Roth IRA within 60-days of receiving the distributed amount. (GET RID OF THE #5 ON THE FOLLOWING LINE - IT WON'T LET ME DO IT)
    • Taxation - Amounts converted from a traditional IRA to a Roth IRA generally are subject to ordinary income tax. The amount converted to a Roth IRA is included in gross income. Any amount that is a return of basis is not included in gross income.
    • Recharacterization - The treatment of a contribution as being made to another type of IRA instead of the IRA that the contribution was initially made. For instance, an individual may make a participant contribution to a traditional IRA, but may later recharacterize the contribution to a Roth IRA.
      • Roth IRA conversions can be reversed by means of a recharacterization. This movement of assets must include earnings (or losses).
      • Deadline for recharacterization: Tax return due date for the year (including extensions) that the original contribution was made.


Simplified Employee Pension (SEP)

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