BROWSE

Roth IRA

Roth IRA can be defined as a tax advantage retirement account. It is offered by the U.S. government. This account includes stocks, bonds, Certificate of Deposits, mutual funds and other investments.

Although this account is similar to the standard IRA account, the qualified distributions under the Roth IRA account are free of tax. And so, contributions are also non-tax deductible. But withdrawal of non qualified distributions from the Roth IRA account is penalized just like any other retirement account.

This account was established under the TRA (Tax Payer Relief Act) of 1997 and named after William Roth, Senator of Delaware.

Roth IRA- What are the Eligibility Requirements?

The eligibility to make a contribution to this account primarily depends on your:

  • Tax-filing status
  • And modified AGI (Adjusted Gross Income)

For the year 2016, individuals who are single-filers and have adjusted gross income below 117,000 US Dollars can make a contribution of 5,500 US dollars. However, those with an adjusted gross income rate over 132,000 US dollars are ineligible to make any contribution to the Roth IRA account.

If a married couple is filing jointly, they can make a full contribution if their adjusted gross income is lower than 184,000 US dollars. However, those couples who have AGI over 194,000 US dollars are ineligible.

Is a Roth IRA Account Beneficial?

Whether a Roth IRA account is beneficial or not as compared to a traditional/standard IRA account depends on the filer’s tax bracket (the expected tax-rate at their retirement). Retired individuals who are in a high tax bracket may most certainly find the Roth account more beneficial as the total tax that is avoided is mostly likely to be greater in comparison to the income tax-paid on the contributed amount.

Retired individuals who want to pass on their assets to heirs’ tax free after their death may also find this account more beneficial.


Further Reading


An analysis of nondeductible IRA contributions and Roth IRA conversions
www.sciencedirect.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

The Influence of Financial Sophistication and Financial Planners on Roth IRA Ownership.The Influence of Financial Sophistication and Financial Planners on Roth IRA Ownership.
search.ebscohost.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

The financial knowledge of college freshmenThe financial knowledge of college freshmen
go.gale.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

CONVERTING A TRADITIONAL IRA TO A ROTH IRA: BREAK-EVEN ANALYSIS.CONVERTING A TRADITIONAL IRA TO A ROTH IRA: BREAK-EVEN ANALYSIS.
search.ebscohost.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

Financial literacy and the design of retirement plansFinancial literacy and the design of retirement plans
www.sciencedirect.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

Measuring the Financial Consequences of IRA to Roth IRA Conversions.Measuring the Financial Consequences of IRA to Roth IRA Conversions.
search.ebscohost.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

What college freshmen admit to not knowing about personal financeWhat college freshmen admit to not knowing about personal finance
www.clutejournals.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

Bounded Rationality Strikes Again: The Impact of Cognitive Ability and Financial Planners on Roth IRA Adoption and OwnershipBounded Rationality Strikes Again: The Impact of Cognitive Ability and Financial Planners on Roth IRA Adoption and Ownership
papers.ssrn.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …

Converting to a Roth IRA with Taxes Paid from Corpus of the Traditional IRAConverting to a Roth IRA with Taxes Paid from Corpus of the Traditional IRA
papers.ssrn.com [PDF]
… Robert McLeod ● Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, Alabama … IRAs and taxable mutual fund investments since deductible IRAs and Roth IRAs are always … Crain & Austin) and the phase- out limits for Roth IRA are well …



Q&A About Roth IRA


Are there any restrictions on who can participate in a Roth IRA?

Yes, only individuals with earned income can participate in a Roth IRA if they meet certain eligibility requirements. Individuals with unearned income such as investment dividends or capital gains cannot make contributions to their own accounts but may be able to contribute to an account owned by their spouse provided that he or she has earned income. Also, married couples must file jointly if either spouse has unearned income exceeding $10,000 per year (adjusted annually for inflation). In addition, anyone under age 18 cannot make contributions even if he or she has earned income because minors lack legal capacity to enter into contracts such as these; however minors may be named beneficiaries of existing accounts opened before they reach adulthood. Contributions are limited based on modified adjusted gross income (MAGI), which includes taxable interest and dividends along with non-taxable items such as tax exempt interest and Social Security benefits subject to taxation upon withdrawal from the account (see below). For example, for 2009 MAGI over $105K

How does the contribution process work for a Roth IRA?

Employees contribute post-tax earnings to their retirement plan, also called "after-tax deferrals". That is, an employee's after-tax deferrals are set aside by the employer in a special account where they can grow tax free until withdrawn at retirement age.

How much can I withdraw without paying taxes on my withdrawal?

You can withdraw your contributions at any time without penalty but if you take out earnings before age 59½ then those earnings will incur both state and federal penalties unless you qualify under one of the following conditions; -You become disabled -You die -You use the money for qualified first-time homebuyer expenses -You use the money for medical expenses exceeding 7% of your adjusted gross income (AG

Who is eligible to contribute to a Roth IRA?

Single filers with an adjusted gross income below $117,000 are eligible to contribute up to $5,500 in 2016. Married couples filing jointly with an AGI below $184,000 are also eligible for full contributions of $5,500 in 2016. Those who have an AGI over $194,000 are not eligible for any contribution at all.

What is a Roth IRA?

A Roth IRA is a type of retirement savings plan.

What is unique about the Roth IRA?

The Roth IRA represents a unique combination of features from both traditional IRAs and 401(k) plans.

What does it mean when you say that distributions from a Roth IRA account are penalized just like any other retirement account?

Distributions from a traditional IRA or 401(k) plan are taxed as ordinary income while withdrawals from a Roth IRA will be taxed as regular income but only if they meet certain criteria (see

What does the term "Roth" mean in the context of an IRA?

The word "Roth" means that contributions are made after taxes have been paid, and earnings grow tax free.

Are there different types of IRAs?

Yes there are different types of IRAs including traditional and Roth IRAs.