The rules for a Roth IRA are basically the same basic rules that apply to a traditional IRA. Roth IRAs however, are designed to help out younger, lower-income individuals. You can contribute to both a traditional IRA and a Roth IRA in the same year but the total contributed cannot exceed the limit allowed. That limit changes from year to year so it is important to know exactly how much you are allowed to contribute each year. If you qualify, it is a good idea to open and fund a Roth IRA in any year you are eligible to do so. You may not be able to contribute every year but that is okay.
Amount You Can Save
If you were less than 50 years old in 2018, the amount you could contribute to an IRA was $5,500. This is the total amount allowed to be contributed. You cannot contribute that amount to both a traditional and a Roth IRA. If you were over 50 by the end of the calendar year, the total was $6000 for 2018. The additional $500 is called catch-up contribution. The Pension Protection Act of 2006 made this a permanent provision. In 2019 the amount you can contribute is $6000 for those under 50 and $7000 for those 50 and over.
The income limits for making contributions to a Roth IRA are quite restrictive. They are not designed for those with higher incomes. For 2018 If you are an individual with an income over 135,000 or a married couple filing jointly making more than $199,000 you cannot contribute to a Roth IRA. For 2019 those figures rise to $137,000 for an individual and $203.000 for a couple.
How Long Can You Continue to Make Contribution?
With A Roth IRA, you can continue to make deposits into your account forever. If you want to make deposits past age 70 ½ you are free to do so. You can leave the money in the account so that it may be inherited by your heirs since there is no required minimum distribution.
When Can You Remove Your Money
Generally speaking, the money in your Roth IRA can be removed tax-free at any time. However, if your account is not five years old and/or you are not 59 ½ years old, the part of your withdrawal that is earnings may be taxable and subject to a 10 percent penalty.
Roth IRA Conversion
If you have a traditional IRA and you are not eligible to contribute to a Roth IRA, you can convert your traditional IRA to a Roth but you must pay the Income Tax on the amount converted. Discuss this option with your tax professional.
You are the person who will determine the quality of your retirement. By contributing to a Roth IRA, especially when you are young, you help to protect yourself when you age but also along the way. Getting the financial advice that you need is vital. The knowledgeable staff at Chandler and Knowles tax accountants look forward to sharing their years of experience with you and getting you on the track for financial success.