What is a Roth IRA? A Roth IRA allows only non-deductible contributions but features tax-free withdrawals for certain reasons after a five-year holding period.
Am I Eligible for a Roth IRA? There are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your modified adjusted gross income (MAGI) cannot exceed certain Limits (see table below)
SINGLE FILERS
MAGI of $95,000 or Less Full Contribution
MAGI Between $95,000 & $110,000
Partial Contribution
MAGI of $110,000 or More No Contribution
MARRIED, JOINT FILERS
MAGI of $150,000 or Less Full Contribution
MAGI Between $150,000 & $160,000 Partial Contribution
MAGI of $160,000 or More No Contribution
MARRIED, SEPERATE FILERS
MAGI Less Than $10,000 Partial Contribution
MAGI of $10,000 or More No Contribution
Maximum Contribution Amount The Maximum Contribution Amount (MCA) is the aggregate amount that you can contribute to any Roth and / or traditional IRA in a given Year. (see table below)
TAX YEAR
MAXIMUM CONTRIBUTION AMOUNT
2002-2004
$3,000
2005-2007
$4,000
2008
$5,000
2009 and thereafter
$5,000 + cost-of-living adjustment (COLA)
Do I Pay Taxes on My Earnings? No, provided you take the earnings as part of a qualified distribution.
What is a Qualified Distribution? In order for earnings to be tax free, you must first meet a five-year holding period for your Roth IRA. This period begins with the tax year for which your first contribution is made. After that, any earnings are income tax free and penalty tax free.
Qualified Distributions are:
Distributions made on or after the date on which you attain age 59 1/2
Distributions made to your beneficiary (or your estate) upon your death
Distributions attributable to your being disabled, and
Qualified first-time home buyer distributions (up to $10,000)
