Rules for 2011
■ If you are married and filing a joint tax return, your Roth IRA contribution is reduced if your income is at least $169,000. If your income is at least $179,000, you cannot make a Roth IRA contribution.
■ If you are single or claim head of household status, your Roth IRA contribution is reduced if your income is at least $107,000. If your income is at least $122,000, you cannot make a Roth IRA contribution.
You may not be eligible to open a Roth IRA if your 2008 income is more than $116,000 for single filers and $169,000 for married and joint filers. If you make too much money, you will need to roll over to a traditional IRA.
You will be given a choice as to how you want your 401(k) money. Your first choice should be to have it rolled over directly to your new Roth IRA. They will send it over without you ever touching it. Your 401(k) company might not allow this. Some insist on issuing you a check then having you pass it along to the Roth IRA company. If this is the case, be sure the check is made out to the new Roth IRA. This is very important. If the check is made out to you, then it will be considered a redemption and subject to an immediate 10 percent tax penalty if you are less than 59 1/2.. A roll-over check should never be made out to you.
You will be given a choice as to how you want your 401(k) money. Your first choice should be to have it rolled over directly to your new Roth IRA. They will send it over without you ever touching it. Your 401(k) company might not allow this. Some insist on issuing you a check then having you pass it along to the Roth IRA company. If this is the case, be sure the check is made out to the new Roth IRA. This is very important. If the check is made out to you, then it will be considered a redemption and subject to an immediate 10 percent tax penalty if you are less than 59 1/2.. A roll-over check should never be made out to you.
To meet the 60-day rule, start counting on the day after you receive the check and include the day you deposit the money into your IRA. For example, if you get the check on Sept. 1, you must get the money into your IRA on or before Oct. 31. There's no extension for weekends or holidays.
What is a Roth IRA?
A Roth IRA is a retirement investment vehicle. Within a Roth IRA you can purchase any investment that you’d like – cash, bonds, options, CD’s, stocks, mutual funds, etc
Are Roth IRA Contributions Tax Deductible?
No.
What are the Benefits to having a Roth?
Contributions that you make to a Roth IRA are after tax, meaning that you’ve already paid taxes on them. As a result, you do not have to pay taxes on them ever again. This includes distributions when you withdraw the funds in retirement. This can be advantageous because many people predict that they will be taxed higher in retirement than they currently are. Also, some people want to lower their taxable income or pass off their IRA to their heirs, tax free.
How does a Roth differ from a Traditional IRA?
Contributions to traditional IRA’s are tax deductible at the time of contribution, however you must pay tax on your distributions in retirement. Contributions to Roth’s, on the other hand, are taxed now so that distributions in retirement are tax free. You basically decide whether or not you want to be taxed now or taxed later when choosing which to contribute to.
When can I Withdraw Contributions, Tax and Penalty Free?
At any time. You already paid the taxes on them.
When can I Withdraw Earnings Tax and Penalty Free?
Earnings distributions can be made without tax and penalty at age 59 and 1/2 if they have been held for a minimum of 5 years.
Are there any other Times Earnings are Tax and Penalty Free?
Yes, in the event of death, disability, or first time home purchase.
What if Earnings are Taken out Before Retirement Age?
They are subject to income tax and may also be subject to a 10% penalty.
What is the Contribution Deadline for a Roth IRA?
You can contribute up until the tax filing deadline in the following year. In other words, for the 2008 tax year, you can contribute up until April 15, 2009. For the 2009 tax year, it is April 15, 2010.
