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Simmons Insurance - ROTH IRA Details
WHAT IS A ROTH IRA?
A Roth IRA is a personal retirement plan into which eligible participants can make after-tax contributions. The Roth IRA was introduced as part of the Taxpayer Relief Act of 1997. A benefit of a Roth IRA is that an owner may take distributions from it tax free, provided that the account is at least five years old and the account holder is 591/2 or older.
WHAT MAKES YOU ELIGIBLE TO SET UP A ROTH IRA?
You may make the maximum Roth contribution provided that your Adjusted Gross Income (AGO does not exceed the low end of the following ranges. The allowable Roth contribution is phased out over the following ranges:
Filing Single Or Head Of Household |
Married Filing Jointly |
Married Filing Separate Return |
$95,000 - $110,000 $150,000 - $160,000 |
$0 - $10,000 |
As an example, assume a married individual filing a joint tax return earns an AGI of $140,000. In this situation, the individual would be eligible to make a full contribution to a Roth IRA (see next question to determine contribution limits). If the same individual made $155,000, only a partial contribution would be allowed. If the individual earned $165,000, no Roth contribution would be permitted.
Unlike the Traditional IRA, there are are no limitations based on whether you are an active participant in an employer-sponsored plan. Also, contrary to a Traditional IRA, contributions may be made beyond age 701/2 provided you still have earned income.
HOW MUCH MAY BE CONTRIBUTED TO A ROTH IRA?
You may contribute the lesser of 100% of income or the maximum contribution allowed in the corresponding tax year. See the chart below for the maximum aggregate contribution allowed for all IRAs in each tax year:
Tax Year |
Maximum Contribution |
2003 |
$3000.00 |
2004 |
$3000.00 |
2005 |
$4000.00 |
2006 |
$4000.00 |
2007 |
$4000.00 |
2008 |
$5000.00 |
Additionally, if you are age 50 or older for the tax year of the contribution, an additional catch-up amount can be contributed. This catch-up option allows an additional $500 to be contributed during tax years 2003 through 2005. The amount will increase to $1,000 thereafter.
As a working spouse, you may also contribute to a Roth IRA on behalf of your non-working spouse provided you file a joint tax return and your AGI doesn't exceed the limitations set forth above.
