The Roth IRA – Individual Retirement Account – IRA
The Roth IRA has the same general requirements as the Traditional IRA I that the taxpayer must have taxable contribution in order to make a contribution. However there are differences between the two different kinds of accounts. Unlike a traditional IRA, the taxpayer can continue to contribute after reaching the age of 70 and ½ and is never required to take a distribution. All the money put into a Roth IRA is non-deductible (this means that is composed of after tax dollars). Another difference is that when the money is withdrawn (providing all the qualifications are met) the distributions are tax free. This attribute creates a big advantage to those taxpayers who may not need the retirement money and wish to pass holdings to their heirs tax-free. The accounts can be inherited and are not subject to tax when the inheritor makes the withdrawals.
Contributions Limits
The Roth IRA as the following contribution limits which are similar to a traditional Ira
The lesser of
If the taxpayer decides that he would like to contribute to a Roth IRA and a Traditional Ira his or her contributions cannot exceed the contribution limits and any excess contributions could result in a penalty.
Qualified Distributions (Roth IRA)
Qualified distributions are distributions received by the taxpayer from the Roth IRA where the taxpayer has met certain conditions. Also if the distributions are part of the taxpayers regular contributions these are also tax free. As a consequence of this non-taxable distributions will not be included in the taxpayers gross income.
A qualified is a payment or distribution from a Roth IRA that meets the following requirements.
When filing taxes
When filing taxes with a Roth IRA, in some cases your Adjusted Gross Income (AGI) will need to be modified. Modified AGI for a Roth IRA is when the taxpayers AGI which is listed on Form 1040 is modified as follows.
The following are subtracted
The following deductions and exclusions are added
Taxpayers can also use the following methods to convert his traditional IRA to a Roth IRA. The following is a summary of the three methods of conversion.
Therefore if the taxpayer is making the conversion with the same trustee, the process is more efficient as the traditional IRA is redesignated as a Roth Ira and a new account is not necessary. The form 8606 is used to convert a traditional, SEP, or SIMPLE IRA to a Roth IRA.