How much can I contribute?

Total contributions to all retirement IRAs for a couple can be as much as $10,000 a year and if you both are age 50 or over, it is $12,000. The limit for a single individual is $5,000 a year and $6,000 if age 50 or over. Your contribution can not exceed aggregate earned income. Your level of income and whether you or your spouse are active participants in an employer-sponsored retirement plan determine the types of IRAs to which you are eligible to contribute. Depending upon your situation, you may have the choice to split your contributions into deductible, nondeductible, and the Roth IRA accounts.

When can I start making contributions to a Roth IRA?

You can open a Roth IRA account if you have earned income and you are within the income limits.

Do I have to convert my existing IRAs to the Roth IRA?

You do not have to convert existing IRAs to Roth IRAs. If adjusted gross income (AGI) is less than $100,000 you may choose to convert all or a portion of your balances. For the purpose of determining conversion eligibility, the amount you convert is not added to your AGI.

How does converting to a Roth IRA affect my contribution eligibility?

Converting to a Roth IRA may affect your eligibility to contribute to a deductible IRA (but not a Roth or nondeductible IRA). The IRA balance you convert is treated as if it were a distribution and therefore can result in additional taxable income to you. This income must be included on your tax return in the year of conversion. 

Can I have more than one Roth IRA?

Yes, you can have as many individual Roth IRA accounts as you wish for different investments. Generally, any converted balance must be kept in separate accounts from annual contributions to Roth IRAs.

What are the tax consequences if I convert?

Conversions are treated the same as a distribution for tax purposes. Any related taxable income from the conversion will be included in your taxable income in the year of conversion. The 10% premature withdrawal penalty does not apply to amounts converted to a Roth IRA.

When do I have to start taking withdrawals from a Roth IRA?

Unlike deductible and nondeductible IRAs, you do not have to begin taking withdrawals at age 70½. You are never required to take minimum required distributions while you are alive.

Are there income taxes on Roth IRA withdrawals?

All withdrawals including earnings are exempt from federal income tax if you have had a Roth IRA for at least five years and one of the following applies: the money is used for a qualified first-time home purchase (up to $10,000), or you are at least 59½, disabled, or on account of death. If the withdrawal doesn’t meet these requirements, the amount of the withdrawal is included in taxable income that year (to the extent that the withdrawal, plus any previous withdrawals, exceed the total contributions to date).

How do I avoid the premature withdrawal penalty on my IRA?

A taxable withdrawal from a deductible, nondeductible, or Roth IRA is not subject to the 10% premature withdrawal penalty if the withdrawal is:

• After age 59½
• Upon death
• Upon permanent disability
• Part of a series of substantially equal periodic payments taken at least annually over your life expectancy
• Rolled over to another IRA in a timely manner
• For medical expenses exceeding 7 1/2% of AGI
• For health insurance premiums while you are unemployed for at least twelve weeks
• For certain higher education expenses
• For first-time home purchase (up to $10,000)

If you would like to know more about IRAs and in particular the Roth IRA or you are considering a conversion from the traditional IRA to the Roth IRA, we can help you determine which is the best IRA for you and whether or not it makes sense to make the conversion.