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February 16, 2009

Roth IRA

Your Guide

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Definition

A retirement savings vehicle, wherein earnings accrue on a tax-deferred basis and distributions are tax-free if qualified. A Roth IRA can be either of the following:

  • An individual retirement ‘account’ , which can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)
  • An individual retirement annuity-contract issued by an insurance company

Contributions to Roth IRAs are not tax-deductible.

In addition to having taxable compensation/income, an individual must meet income requirement in order to be eligible to contribute to a Roth IRA. The MAGI limits can be found here under the definition of IRA

Referring Cite

IRC § 408A, IRS Publication 590

Additional Helpful Information

  • Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional IRAs and/or Roth IRAs. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.
  • The dollar limits as of 2005 can be found here under the definition of IRA
    An individual can split the annual limit between a traditional IRA and a Roth IRA, or contribute the entire amount to either
  • IRA contributions must be made in cash

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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Keep Learning

Salary Deferral Contribution

Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages  contributed to his/ her employer sponsored plan  rather than

Annual Addition Limit

Definition The annual Addition limit is the maximum amount that may be added to a defined contribution plan on behalf of a participant for any

Deduction

Definition A deduction is a Tax write-off which is allowed for contributions to traditional IRAs or employer sponsored plans. Individuals who are active participants are

Excess deferral

Definition Salary deferral contributions, contributions are limited to the lesser of the IRC § 402(g) limit or 100% of compensation. Salary deferral contributions in excess

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