Roth IRA Rules – Learn Them Here Today!
The good news is that the Roth IRA rules are quite simple to understand and comprehend since they are divided into few categories, which trace the usual circumstances that may take place along the way – qualifications or eligibility requirements, making contributions, transfers or rollovers, and withdrawals.
You should start by gaining knowledge of the chief purpose of a Roth IRA. This retirement savings plan is just one of the many forms and types of Individual Retirement Accounts. You might have heard about SIMPLE IRAs, self directed IRAs or traditional IRAs that to some extent have different groups, benefits, or advantages they target, but at the end of the day they all serve similar purpose of providing comfortable retirement years. An IRA is an effective method for you to save sufficient amount of money for your future.
Because all the types of retirement accounts present short and long term tax inferences, the Internal Revenue Service or IRS has delineated some policies to ensure that abuses in any form will not come about. As you read more, you will recognize that some of the rules are made to protect the investors, while other policies save the government from harm.
Roth IRA Contribution Rules
The Roth IRA rules on eligibility state that any person can make contributions to a Roth retirement plan, not considering their age. To be qualified for a Roth IRA contribution, you should have a taxable compensation such as wages, bonuses, tips, salaries, fees and any other amount you’re getting for the services you provide to a company or an individual. Though you might be qualified to contribute to this individual retirement account, there are other limits that you need to take into consideration, which emphasize the second set of regulations.
The basic rule about income limit on contributions is that, if your adjusted gross income goes beyond the set limitations, then you are disqualified and will no longer be permitted to contribute to a Roth IRA.
The adjusted gross income set limits for 2012 are as follows:
- Individuals with filing status of head or household, single, or married filing separately provided that they did not live or stay with their spouse at any time during the year with MAGI or adjusted gross income of not more than $110,000 are allowed to make full contributions. If you’re between $110,000 and $125,000, the amount you can contribute is reduced. If you’re over $125,000 you cannot contribute to a Roth IRA.
- Individuals with filing status of joint filers with MAGI of not more than $173,000 are permitted to carry out full contributions.
- Individuals with filing status of married filing separately and live with their spouses can make contributions to a Roth IRA if their AGI is not more than $10,000.
- For the 2012 tax year the allowed maximum contribution is $5,000 with a catch-up contribution for those who are fifty years or older of not more than $1,000.
- These rules may change for 2013 and beyond.
The types of transfer that you can apply for concerning your Roth IRA include account-to-account transfer, same trustee transfer and a rollover.
Roth IRA Withdrawal Rules
The Roth IRA rules for qualified distributions state that you have to be 59 ½ years of age and your account is active for the last five years. The Roth IRA tax rules state that any early withdrawals are subject to an additional tax penalty of not less than 10%. There are some exceptions to avoid the Roth IRA withdrawal penalty, such as for first time home buyers.
Make sure to first consult with a retirement planner or financial consultant to make sure you follow the Roth IRA eligibility requirements.