Roth IRA
Definition
A retirement savings vehicle, wherein earnings accrue on a tax-deferred basis and distributions are tax-free if qualified. A Roth IRA can be either of the following:
- An individual retirement ‘account’ , which can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
- An individual retirement annuity-contract issued by an insurance company
Contributions to Roth IRAs are not tax-deductible.
In addition to having taxable compensation/income, an individual must meet the following income requirement in order to be eligible to contribute to a Roth IRA.
Tax filing status |
MAGI 2007 |
Allowable contribution |
Single |
$99,000 or less |
Full amount |
Between $99,000 and $114,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $114,000 |
$114,000 or more |
No contribution is allowed |
Married filing jointly |
$156,000 or less |
Full amount |
Between $156,000 and $166,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $166,000 |
$166,000 or more |
No contribution is allowed |
Married filing separately |
$-0- |
No contribution is allowed |
|
Between $-0- and $10,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $10,000 |
|
$10,000 or more |
No contribution is allowed |
~O~
Tax filing status |
MAGI 2008 |
Allowable contribution |
Single |
$101,000 or less |
Full amount |
Between $101,000 and $116,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $116,000 |
$116,000 or more |
No contribution is allowed |
Married filing jointly |
$159,000 or less |
Full amount |
Between $159,000 and $169,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $169,000 |
$169,000 or more |
No contribution is allowed |
Married filing separately |
$-0- |
No contribution is allowed |
|
Between $-0- and $10,000 |
Contribution is phased out, i.e. less than the dollar amount in effect for the year, with the amount getting lesser as the MAGI gets closer to $10,000 |
|
$10,000 or more |
No contribution is allowed |
For individuals with MAGI within the phase out range, a special formula must be used to determine the allowable contribution amount.
Referring Cite
IRC § 408A, IRS Publication 590
Additional Helpful Information
Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional IRAs and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.
The dollar limits for 2002 to 2009 are as follows:
Year |
IRA contribution limit |
Catch-up contribution limit |
2002 |
$3,000 |
$500 |
2003 |
$3,000 |
$500 |
2004 |
$3,000 |
$500 |
2005 |
$4,000 |
$500 |
2006 |
$4,000 |
$1,000 |
2007 |
$4,000 |
$1,000 |
2008 |
$5,000 |
$1,000 |
2009 |
$5,000 + COLA adjustments |
$1,000 |
- An individual can split the annual limit between a traditional IRA and a Roth IRA, or contribute the entire amount to either.
- IRA contributions must be made in cash
Related Articles Tutorial or Other Content
IRA Contributions Tutorial
IRA Deductibility Tutorial
IRA Contributions- Back to Basics
Individual retirement arrangement
|
|
|
