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Roth IRA Eligibility

Without doubt, the Roth IRA is the retirement savings plan with the most potential. Though there are significant similarities on the features of the Roth and the Traditional Individual Retirement Account, there are as well profound differences between them. Here, you will learn about the Roth IRA eligibility requirements, how it functions and how you can set up one.

So why do you need to have your own Roth IRA?

Similar to the Traditional IRA, this retirement investing vehicle is an efficient alternative to an individual’s retirement earnings, but distinct from the Traditional IRA, for which your accrue income on a tax-deferred basis, the Roth retirement account accumulates earnings free from tax. For this retirement account, the contributions you’ll make are 100% tax free and the qualified contributions will never be tax deductible. Like fulfilling contributions to the Traditional retirement account, completing the contributions to the Roth IRA for the entire year is very flexible, thus allowing you to choose when you will fund your Roth IRA.

Roth IRA Eligibility Requirements

The Roth IRA eligibility requirements surround the fundamental principle that any individual who has a taxable compensation of self-employment earnings from partners or sole proprietors during the year can apply and fund a Roth IRA. To be qualified to carry out a participant contribution, you should have a MAGI or modified adjusted gross income that is not more than a specific amount, which solely depends on your tax-filing status.

The MAGI limits for Roth IRA contribution eligibility are as follows:

  • For those who are married and have filed a joint tax return : $166,000
  • For those who are married, have filed a separate tax return, and lived with their spouse at any point during the year : $10,000
  • For those who are single, married filing separately and did not stay or live with their spouse at any moment during the year, or head of household : $114,000

You should be able to establish your Roth IRA with a financial institution that has obtained an IRS approval to furnish IRAs. You can choose from brokerage companies, banks, saving and loan associations and federally insured credit unions.

The good thing is that a Roth IRA can be created at any time during the year. But, keep in mind that the contributions for a tax year should be made with your tax-filing deadline, which is normally to April 15 of next year. Note that tax-filing extensions are not possible.

There are two fundament documents that will be provided to you once you’ve established a Roth IRA: first, is the disclosure statement and second, the IRA adoption contract or agreement and plan document. These may change after 2009 and possibly into year 2010.

If you are working for an employer or company, the compensation that is qualified to fund a Roth retirement account are salaries, wages, bonuses, commissions, and other amounts paid to you for the services that you perform for you employer. If you are self-employed, the eligibility for Roth IRA requires you to only accept funds coming from your company or business’ net earnings, reduced by deductions permitted for contributions accomplished to retirement accounts on your behalf and further deducted by 50% of your self-employment taxes.

If you need to learn more about retiree investing and want more control over your Individual Retirement Accounts, you might want to look into opening a self-directed IRA. By using your own self-directed retirement account, you can invest in areas other than the standard stocks, bonds, and mutual funds such as real estate, tax liens, secured loans (such as mortgages), private businesses, etc.

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It’s Not Too Late! - You can still open your IRA today and receive taxable deductions for 2015. Learn How