A Roth IRA is an individual retirement account which allows a person to contribute a specified amount of after-tax income each year. Earnings on the account and withdrawals after age 59½ are tax-free.
Annual Contribution Limits
- Age 50 and older: $7,000.
Full contribution allowed:
- Single filers below $122,000.
- Married, filing jointly, with a modified adjusted gross income below $193,000.
Partial contribution allowed:
- Single filers $122,000–$137,000.
- Married, filing jointly, with a modified adjusted gross income of $184,000–$194,000.
- Married, filing separately up to $10,000.
No contribution allowed if:
- Single filer $137,000 and above.
- Married, filing jointly; $203,000 and above.
- Married, filing separately: $10,000 and above.
- Any individual with earned income at least equal to their IRA contribution (no age limit).
- Eligibility for a Roth IRA is determined by your income.
- Any individual who meets income and tax-filing criteria for full or partial contributions.
- If a joint return is filed, any nonworking spouse of a wage earner.
- Contributions for the previous year can be made until the deadline for filing taxes for that year. (Example, contributions for 2017 must be made by April 15, 2018).
Taxes on Withdrawals of Earnings
If you are age 59½ or older:
- None if you’ve held the account five years or more; ordinary federal income tax if you’ve held the account less than five years.
If you are under age 59½:
- Ordinary federal income tax if you’ve held the account for five years or more, unless the distribution is due to your death or disability or for a first-time home purchase ($10,000 lifetime maximum); ordinary federal income tax if you’ve held the account for less than five years.
- State taxes may apply.
Penalty for Early Withdrawals
- No penalty if you’re age 59½ or older; 10% federal penalty tax if you’re under age 59½ unless an exception applies.
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