Roth IRA Rules

What is a Roth IRA? This is one of the most common questions that we often hear from new employees who have just been introduced to saving up part of their income for their retirement. A Roth IRA is a type of Individual Retirement Account plan that is believed to be most advantageous especially when it comes to paying the taxes. This is because the contributions that are made to a Roth IRA are taxed right away, which allows the investments to gain tax-free growths as long as the investors know how to invest them properly. Thus, it is important for investors to invest their IRA funds to those investment accounts that can provide the best Roth IRA rates possible, so they can get the most benefits out of the tax-free profits from this kind of investment vehicle.

Because of this, Roth IRA account holders are also eligible to enjoy tax-free withdrawals, as long as they abide with the Roth IRA withdrawal rules and meet the required parameters. For 2012, the same withdrawal rules apple. The two major parameters that Roth account holders must meet in order for therm to enjoy tax-free withdrawals are age and holding period. The account holder must be at least 59 and 1/2 years of age by the time they make the withdrawal, and the account must have been opened for at least 5 years, so that they will be able to withdraw their retirement money tax-free.

Who Are Eligible for Roth IRA?

Roth IRA is open for employed individuals who are earning taxable income in the form of salaries, wages, commissions, bonuses, and even tips. According to the Roth IRA rules,there is no age limit for those people who like to make contributions to such. However, the Internal Revenue Services (IRS) imposed the maximum Roth IRA income limits for the contributors; thus, those who like to make contributions must not exceed such limits in order to be eligible for such IRA plan.

The Roth IRA limits are as follows:

  • Single filers or heads of the family are allowed to make a full contribution to a Roth IRA if they are earning a modified adjusted gross income (MAGI) of not more than $110,000. Contribution limit is phased out after $125,000 MAGI.
  • Married filing jointly may make full Roth contributions if their combined MAGI does not exceed $173,000. The contribution limit is phased out at $183,000.
  • Married couples who are filing separately but they are still living together are no longer allowed to make Roth contribution if their MAGI exceeds $10,000.

2012 Contribution Limits for Roth IRA

The Roth IRA contribution limits for this year still remains the same as with 2012. Standard contribution still remains at $5000 maximum, and this is applicable for those account holders who are below the age of 50 years old. Those Roth account holders who are 50 years and older are allowed to make catch-up contribution of $6000 maximum.