The Roth IRA is a non-deductible IRA which offers tax-deferred earnings. Distributions from a Roth IRA, held for at least five years, are tax free if used for a qualified purpose.
Tax-Free Distributions
Traditional IRAs only allow tax deferral, the government collects tax at the time of distribution. Distributions from a Roth IRA are tax free if used for a qualified purpose.
Qualified Distributions
Distributions which are tax free include: higher education; buying a first home (up to $10,000); age 59½; death; and disability. In order to qualify, the five year holding period requirement must also be met.
Contribution Limits (Roth)
| Year |
Contribution Limit |
| 2011 |
$5,000 |
| 2012 |
$5,000 |
Catch Up Contributions
Individuals who turn age 50 and older can make a catch-up contribution of $1,000 per tax year in addition to regular contributions. This catch-up contribution may also be made to an IRA for a non-working spouse.
Eligibility
Roth IRAs are available to married couples with incomes below $169,000 for 2011 and single filers with incomes below $107,000 for 2011. In addition, individuals must have earned income to be eligible. The age 70½ requirements do not apply to Roth IRAs.
Rollovers From Traditional IRAs
Traditional IRAs may be rolled into Roth IRAs. This allows depositors to gain the advantage of tax-free distributions in the future.
