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Roth IRA

Roth IRAs
A Roth individual retirement account is a great way to save for your retirement.  Investing money into a Roth IRA even gives you a couple of tax benefits. 
 
How much can I Contribute?
For 2015 and 2016 the contribution limits for a Roth IRA are $5,500 and $6,500 if you’re age 50 or older by the end of the year.  If you make less than these amounts for the year then your contribution is limited to your taxable compensation.  If you make over certain amounts listed in the chart below then your limit changes.  If you are not eligible to contribute to a Roth IRA because your income is too high then you can always contribute to a Traditional IRA or your employer sponsored retirement plan. 
 

Modified Adjusted Growth Income (AGI) Effect on Roth IRA Contribution for 2015

If your filing status is...
And your modified AGI is...
Then you can contribute...
married filing jointly or qualifying widow(er)
 < $183,000
up to the limit
 > $183,000 but < $193,000
 a reduced amount
 >  $193,000
 zero
married filing separately and you lived with your spouse at any time during the year
 < $10,000
 a reduced amount
 > $10,000
 zero
single, head of household, or married filing separately and you did not live with your spouse at any time during the year
 < $116,000
up to the limit
 > $116,000 but < $131,000
 a reduced amount
 > $131,000
 zero

 

Modified Adjusted Growth Income (AGI) Effect on Roth IRA Contribution for 2016

If your filing status is...

And your modified AGI is...

Then you can contribute...

married filing jointly or qualifying widow(er)

< $184,000

up to the limit

> $184,000 but < $194,000

a reduced amount

> $194,000

zero

married filing separately and you lived with your spouse at any time during the year

< $10,000

a reduced amount

> $10,000

zero

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

< $117,000

up to the limit

> $117,000 but < $132,000

a reduced amount

> $132,000

zero

 
Tax-deferred Growth and Tax Free Withdrawal
Money invested in a Roth IRA grows tax-deferred.  Simply put, when you sell something in the account, you don’t pay capital gains tax.  However, when you sell something for a loss in a Roth IRA, it is not tax deductible as it would be in a taxable account.  Tax-deferral helps you harness the power of compound interest. 
 
Who Can Contribute?
You can contribute if you (or your spouse only if filing jointly) have taxable compensation even after you reach age 70.5. 
 
What is the Deadline to make a Contribution to your Roth IRA?
The deadline to make a contribution to your Roth IRA is the same as your tax return filing deadline, not including extensions.  If your tax return filing deadline is April 15, 2016, you have until then to make your contribution for 2015. 
 
When do I have to take Required Minimum Distributions (RMDs)?
Unlike a traditional IRA you do not need to take RMDs from a Roth IRA.  The exception to the rule is if you have inherited the Roth IRA. 
 
Are my Withdrawals and Distributions Taxable?
At age 59.5 you can begin taking distributions as long as the account has been open for 5 years.  You can take out up to the amount you contributed before age 59.5 without paying any taxes or penalties.  If you take out any earnings from your Roth IRA before age 59.5 you must pay a 10% early withdrawal fee.  There are a few exceptions to the rule.  Check with your financial advisor before taking an early withdrawal.
 
Are my Contributions Deductible?
Contributions to a Roth IRA are made with after-tax dollars and are not tax deductible, but the money withdrawn from the account comes out tax free. 
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