Roth IRA Basics in 2013

Authored by Jim Guynan

Eligibility: (2013)

Single taxpayers with adjusted gross income of up to $112,000 or married couples filing jointly with adjusted gross income of up to $178,000 are eligible to contribute the full $5,500 annually to a Roth IRA in 2013. Workers who are age 50 or older may contribute an additional $1,000 to a Roth IRA in 2013, for a total of $6,500.

The contribution amount in 2013 is gradually reduced to zero for adjusted gross income levels between $112,000 and $127,000 for single taxpayers, and between $178,000 and $188,000 for couples.

Unlike regular IRAs, contributions to a Roth IRA can be made even after age 70-1/2.

Deductibility:

Contributions to a Roth IRA are non-deductible. Instead, the tax advantages of a Roth IRA are “backloaded.” Earnings on Roth IRA contributions accumulate without tax and distributions may be received tax free.

Qualified Distributions:

Qualified distributions from a Roth IRA are not included in gross income and are not subject to the additional 10% penalty tax for premature distributions. To be a tax-free qualified distribution:

• The distribution must occur more than five years after the individual first contributed to the Roth IRA; and
• The individual must be at least 59-1/2 years old, disabled, deceased or the funds must be used to purchase a first home ($10,000 lifetime limit).

Converting from a Traditional IRA to a Roth IRA:

Income taxes must be paid on the amount that is converted from a traditional IRA to a Roth IRA, but there is no premature distribution penalty tax.