An Individual Retirement Account or IRA is a form of retirement plan which gives retirees tax advantages with their savings. It is best not to rely solely on retirement plans sponsored by our employers and start investing on a more secured life after retirement and that is through IRA. Some IRA’s are tax-deductible like Traditional IRA and others are non-tax-deductible like Roth IRA. Although contributions from a Roth IRA can’t be deducted from our taxes, this type of IRA account has been the choice of many because its distributions are tax-free.
Roth IRA rules are pretty simple. In fact every individual who is working for a living and are receiving tax compensations such as wages, salaries, bonuses, tips, professional fees and other amounts received by giving service to others is eligible to contribute to a Roth account. Rules of a Roth IRA account have set certain limits for account holders such as contribution limits and distribution limits.
Contribution Limits
- Contributions with Roth are limited with an amount of $5,000.
- A catch up limit of $1,000 is provided for individuals aging 50 and up.
- Single filers, head of households and married couples filing separately but not living with spouse with a modified adjusted gross (MAGI) income of $107,000 is allowed a full contribution with Roth. If their MAGI exceed $122,000 any contribution with Roth is prohibited.
- MAGI of joint filers should fall under the range of $169,000 to $179,000 to be allowed a full contribution.
- Married couples filing separately and living together should not exceed an MAGI of $10,000 for a full contribution to be permitted.
Distribution Limits
As I have said, the main advantage of a Roth IRA is that its distributions/withdrawals are tax-free. But first distributions out of this account should be made at least 5 years after your first contribution with Roth. Also you need to be 59 ½ years old when you make your first withdrawal. Withdrawals without meeting these terms shall be imposed with a 10% early withdrawal penalty. These are basically the IRA distribution rules of Roth.
While you are still young it is very wise to invest on your future so as to secure a better life after we quit our jobs due to age constraints. And having an IRA account with the best discount brokerage firms online is one way to do it.
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