ACCOUNT LOGIN
User ID
User ID / Password Help

Getting Online Guide

Card Services


divder_line divder_line divder_line
sidebar_background_extend

More Info

The Roth IRA Advantage

Contributions to a Roth IRA are not deductible, but if the funds are distributed in a "qualified distribution," they are not subject to federal income tax. Therefore, the earnings on the Roth IRA are generally tax-free. These "tax-free" earnings make the Roth IRA the most exciting new personal saving option since IRAs were first permitted in 1975!

Increased Contributions

Starting in 2002, the annual Traditional and Roth IRA contribution limits will be raised. Individuals age 50 and older will benefit from even higher limits, allowing those closest to retirement to save even more.

The chart below shows the new contribution limits for the next several years.

 

Year Age 49 and Below Age 50 and Above
2008 $5,000 $6,000
2009 $5,000 $6,000
2010 $5,000 $6,000
2011 $5,000 $6,000

 

Your Roth IRA contributions are limited to 100% of your earned income. To contribute $6,000 for 2011, you, or your spouse, must earn at least $6,000 in 2011.

The contribution limit for Traditional and Roth IRAs is aggregated. For example, for 2011, if you are age 50 or older, you may contribute $6,000 to a Traditional IRA or a Roth IRA, but if you contribute to both, the total contribution to both will be limited to $6,000.

Contributions to a Roth IRA for a tax year must be made by the tax-filing deadline for the year (not including extensions).

Single Individuals (2010 and 2011)

If you are single, you may be eligible for the full Roth IRA contribution if your modified adjusted gross income (MAGI) is $105,000 ($107,000 in 2011) or less for the year. If your MAGI is between $105,000 ($107,000 in 2011) and $120,000 ($122,000 in 2011), you may be eligible to contribute to a Roth IRA, but not the full amount. You are not allowed to make a Roth IRA contribution for the year, if your MAGI is $120,000 ($122,000 in 2011) or more.

Married Individuals, Filing Jointly (2010 and 2011)

If you are married and filing a joint federal income tax return, you may be eligible for the full Roth IRA contribution if your joint MAGI is under $167,000 ($169,000 in 2011) for the year. If your joint MAGI is between $167,000 ($169,000 in 2011) and $177,000 ($179,000 in 2011), you may be eligible to contribute to a Roth IRA, but not the full amount. If your combined MAGI is at least $177,000 ($179,000 in 2011), you are not allowed to make a Roth IRA contribution for the year.

Married Individuals, Filing Separately

If you are married and file a separate federal income tax return, you may be eligible for the full Roth IRA contribution if your MAGI is $0 or less for the year. If your MAGI is between $0 and $10,000, you may be eligible to contribute to a Roth IRA, but not the full amount. If your MAGI is $10,000 or more, you are not allowed to make a Roth IRA contribution for the year.

 

2011 Roth IRA Contribution Limits
FILING STATUS AND your modified AGI is CONTRIBUTION LIMITS
Married filing jointly or qualifying widow(er) less than $169,000 you can contribute up to $5,000 or $6,000 (if you are age 50 or older)
at least $169,000 but less than $179,000 the amount you can contribute is reduced (phased-out) per IRS guidelines
$179,000 or more You cannot contribute to a Roth IRA
Married filing separately as an active participant in an employer-sponsored retirement plan (e.g. 401K) and lived with your spouse at anytime during the year zero you can contribute up to $5,000 or $6,000 (if you are age 50 or older)
more than zero but less than $10,000 the amount you can contribute is reduced (phased-out) per IRS guidelines
$10,000 or more You cannot contribute to a Roth IRA
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year less than $107,000 you can contribute up to $5,000 or $6,000 (if you are age 50 or older)
at least $107,000 but less than $122,000 the amount you can contribute is reduced (phased-out) per IRS guidelines
$122,000 or more You cannot contribute to a Roth IRA

 

No Maximum Age

There is no maximum age for making a Roth IRA contribution. Attainment of age 70½, or any other age, does not prohibit you from contributing to a Roth IRA. However, Roth IRA contributions must still be based on earned income.

Tax Credit for Contributions

Starting in 2002, you may be eligible for a tax credit for Roth IRA contributions. Depending on your tax-filing status and level of income, the credit will vary from 10% to 50% of the amount contributed, up to $2,000, for a maximum tax credit of $1,000.

Converting a Traditional IRA to a Roth IRA

Generally, if your MAGI for the year does not exceed $100,000 (not including the IRA distribution), you may convert part or all of your Traditional IRA to a Roth IRA.

However, if you are married and file separately, you may not convert a Traditional IRA to a Roth IRA, if you have lived with your spouse at any time during the year of conversion.

The conversion of a Traditional IRA to a Roth IRA is treated as a taxable distribution for the year of the conversion. The IRS 10% early distribution penalty does not apply to the conversion of a Traditional IRA to a Roth IRA.

Example: An individual, under age 59½, converts a Traditional IRA to a Roth IRA in 2001. The taxable amount of the conversion is $40,000. The individual will include the entire $40,000 in income for 2001. Although the individual is under age 59½, the IRS early distribution penalty does not apply.


Withdrawals

If a withdrawal from a Roth IRA is a qualified distribution, it is not subject to federal income tax. A qualified distribution is also exempt from the IRS 10% early distribution penalty.

A withdrawal is a qualified distribution if it is paid:

  • To you after you attain age 59½
  • To you when you are disabled,
  • To you for a qualifying first-time home purchase, or
  • To your beneficiary after your death,

 

And it is paid:

  • After the five-taxable-year period that begins with the earlier of the first taxable year for which you made a Roth IRA contribution, or the first taxable year in which you converted a Traditional IRA to a Roth IRA.

 

A distribution that is not a "qualified distribution" may be taxable and may be subject to the IRS 10% early distribution penalty. To determine the taxable portion of the distribution, distributions are treated as first being paid from the accumulated contributions to the Roth IRA. Roth IRA distributions are not taxable until all of the contributions to the Roth IRA have been withdrawn.

The IRS 10% early distribution penalty will not apply if the distribution is paid on or after the date you reach age 59½, or if one of the exceptions to the IRS 10% early distribution penalty applies. These exceptions are the same exceptions that apply to Traditional IRAs.

Save with a Roth IRA

It’s true. A Roth IRA is now an even better way to save for your future. The chart below shows just how much more the new increased contribution limits allow you to save for your retirement with either a Traditional or Roth IRA. Remember, with a Roth IRA, all earnings are tax-free earnings if certain rules are followed!

Roth IRA chart