A Roth IRA is an individual retirement account designed to allow individuals to save money with the benefit of receiving a tax break during their retirement years. Contributions are not tax-deductible but withdrawals of the earnings down the road are generally tax-free when taken for a qualified reason.
Who can open a Roth IRA?
There are eligibility requirements to open a Roth IRA. The IRA owner or spouse must have earned income and their modified adjusted gross income cannot exceed the limits based on tax filing status.
Contributions can be made to a Roth IRA of up to 100 percent of your earned income or the annual contribution limit as noted in the chart below, whichever is less. This is an aggregate total between any Traditional and/or Roth IRA contributions. In addition, your Modified Adjust Gross Income (MAGI) cannot exceed certain limits. The IRS reviews the contribution limits annually and adjusts if necessary to keep in line with inflation and the cost of living.
Contributions to a Roth IRA are not tax deductible. If you’re looking for an immediate tax break by being able to deduct your IRA contributions, you might consider a Traditional IRA. For any IRA, please consult your tax professional for specific recommendations based on your individual tax needs.*
The deadline for regular and catch-up IRA contributions is your federal income tax filing due date, excluding extensions (usually April 15th).
Roth IRA Distributions
Here are the rules regarding Roth IRA distributions:
- Early Withdrawal Penalties: Roth IRA distributions of contribution amounts are not subject to penalty, regardless of age or whether an exception applies. Distributions of the earnings may be subject to penalty, depending on whether the distribution is considered qualified. To be a qualified distribution, five years must have elapsed since the first Roth IRA contribution was made, and you are over 59½, permanently disabled, a first time home buyer, etc. For a complete list of exceptions to penalty on early distributions, visit www.irs.gov.
- Taxation of Withdrawals: Roth IRA distributions of contributions are non-taxable. Earnings may be subject to tax, depending on whether the distribution is considered qualified.
- Mandatory Withdrawals: You are not required to take distributions from your Roth IRA. Assets held in a Roth IRA are not subject to the age 70½ required minimum distributions. In the event of your death, your beneficiaries will be notified and receive the rights to the balance of your Roth IRA. Distributions to your beneficiaries are tax free and penalty free and there are options available to them on how the funds can be disbursed.
Learn more about the features and benefits of a Roth IRA by stopping by any of our branches during normal business hours or calling our Member Service Center at (800) 877-8328.
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*Information provided is intended to provide general information on federal tax laws governing Roth IRAs. It is not intended to provide legal advice or to be a detailed explanation of the rules or how such rules may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal professional.