Series 66

Special Issues for Retirement Plans - Roth IRAs

Roth IRAs have a very different tax structure than Traditional IRAs. Contributions are not deductible. However, earnings may be withdrawn tax-free (rather than tax-deferred) if the following conditions are met:

  • Withdrawals do not occur until the account has been open at least five years
    AND
  • Withdrawals do not occur until the Roth IRA owner reaches age 59 ½
The Roth IRA is a very powerful vehicle, since virtually all other retirement accounts offer only tax-deferral on the earnings. However, income limits do apply. The chart below shows the maximum amount of income permitted to make the full contribution, as well as the phase-out income range for a partial contribution:


Filing Status Full Contribution Partial Contribution
Single or Head of Household Up to $95,000 $95,001-$109,999
Married Filing Jointly Up to $150,000 $150,001-$159,999

The following information applies to Roth IRAs only:


  • Contributions are permitted after age 70 ½ (assuming there is earned income).
  • There are no mandatory minimum required distribution rules at any age.
  • Withdrawals are made on a FIFO basis (first in, first out) - so any withdrawals made come from contributions first. Therefore, no earnings are considered withdrawn until all contributions have been withdrawn.
  • Withdrawals of contributions are neither taxable nor penalized - even if they are made before age 59 ½ or before the account has been open for five years.
  • Withdrawals of earnings are taxed but not penalized under the same exceptions listed for Traditional IRAs.
The Roth IRA is arguably the IRA with the most potential. There are many similarities between the Roth and Traditional IRA but also some striking differences. The tutorial on Roth Individual Retirement Account examines, how it works, how to set one up, and even how to withdraw from it.



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