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Roth IRA
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What is a Roth IRA?
The Roth IRA, named after the Senate Finance Committee Chair, William V. Roth, Jr. (R-Delaware), is much like a Traditional IRA in that you may contribute up to $3,000 per year into the account. The big difference is the tax treatment. Contributions to a Roth IRA are not deductible, but your investment earnings over the years can be tax-free. In other words, when you begin to withdraw your earnings according to the legal guidelines, you will pay no additional tax.
The short-term benefits are not as appealing as a Traditional IRA, but the long-term benefits cannot be matched. Those approaching retirement will not be forced to take distributions. Younger investors will find the Roth IRA more liquid and flexible under a variety of qualified purposes.
| Who’s Eligible to Invest
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Individuals with earned income. No age limit to contribute. Spouses with one income can contribute for both. Contribution is limited if Modified Adjusted Gross Income (MAGI) is between
~ $95,000 and $110,000 for individual returns
~ $150,000 and $160,000 for joint returns
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| Maximum Annual Contribution
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Year…Amount of Contribution
2002-2004…$3,000
2005-2007…$4,000
2008 and beyond…$5,000
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| Contribution Deadlines
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IRA’s for the taxable year can be opened and funded any time between the first day of your tax year and the date your tax return is due for the year, excluding extensions. This due date is normally April 15 of the following year.
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| Catch-up Contribution Limits
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Individuals age 50 and over will be eligible to make additional “cat-up” IRA contributions of up of $500 in 2002 through 2005. The catch-up contribution limit will increase to $1,000 for 2006 and later years.
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| Tax Advantages
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Tax-free investment growth if the account has been open for 5 years or more.
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| Contribution Deductibility
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No deduction for contributions. Tax-free growth replaces this benefit.
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| Withdrawal of Assets
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Withdrawals of contributions are non-taxable. However, the account must be open for at least 5 years to qualify for tax-free withdrawal of investment earnings upon reaching age 59 ½ or purchase a first home. Only earnings are taxed for withdrawals before 5 years.
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| Tax Credit
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For taxable years 2002 through 2006 only, eligible lower income individuals will be allowed a contribution tax credit.
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| Mandatory Distributions
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No required minimum distributions at age 70 ½.
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| Eligibility with other Retirement Plans
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Other retirement plans do not effect eligibility.
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Conversions
Traditional IRA to Roth IRA
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No.
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| Transfers and Rollovers
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Yes
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The above information is based on the Economic Growth and Reconciliation Act of 2001 and the current interpretation of the language in the Taxpayer Relief Act. Where language in the Act is unclear, assumptions have been made. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Representatives of this bank may not give legal or tax advice.
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