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	2009 MAGI	2008 MAGI	Allowed contribution
Single	$105,000 or less	$101,000 or less	100%
	$105,000  - $120,000	$101,000 - $116,000	Partial
	$120,000  or more	$116,000	None
Married filing jointly	$166,000 or less	$159,000 or less	100%
	$166,000 -$176,000	$159,000 - $169,000	Partial
	$176,000 or more	$169,000 or more	None
Married filing separately	Less than $10,000	Less than $10,000	Partial
	$10,000 or more	$10,000 or more	None

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:

• 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