Roth IRA

A Roth IRA allows you to accumulate earnings on a tax-deferred basis and to withdraw earnings tax-free for qualified distributions. Unlike a Traditional IRA, contributions to a Roth IRA are not deductible from your gross income on your federal income tax return. However, since you have already paid taxes on the money you've contributed to the account, contribution dollars can be withdrawn at anytime without tax consequences.

Here's more information about Roth IRAs:

• Compare Roth vs Traditional IRA
• Tax advantages
• Eligibility requirements
• Annual contribution limits
• Contribution timing
• Investment options
• Distribution guidelines

Compare Roth vs Traditional IRA

Which Type of IRA is better for me, Traditional or Roth? Comparison Chart or Flow Chart (PDF 132 KB) or Calculator.

Tax advantages

Contribution dollars may be withdrawn at anytime, tax and penalty tax free. Earnings on the account accumulate on a tax-deferred basis and can be withdrawn free from federal income taxes, provided that they are taken according to qualified distribution guidelines.

Eligibility requirements

You must have earned income (compensation) in order to contribute to a Roth IRA. The annual amount you can contribute to a Roth IRA is solely dependent on your adjusted gross income as determined on your federal income tax return. The following table should help you determine whether or not you are eligible to contribute to a Roth IRA:

Annual contribution limits

In tax year 2007, you can make annual contributions to a Roth IRA of up to $4,000 ($5,000 in 2008) or 100% of your earned income, whichever is less. An aggregate of $8,000 for 2007; $10,000 for 2008 can generally be contributed per married couple ($4,000 per IRA for 2007; $5,000 per IRA for 2008) provided that either you or your spouse has earned income of at least that amount. Contribution limits are set according to phase out ranges of your adjusted gross income -- see table above. The $4,000/$5,000 and $8,000/$10,000 annual contribution limits apply to the combination of all of your Traditional and Roth IRAs.

If you are age 50 or older, you may make additional "catch-up" contributions to your IRA. Over the next several years, the maximum annual contribution amount will increase as shown in the table below.

Note: Additional "catch-up" contributions have been included in amounts shown for age 50 or older.

Contribution timing

You can make annual contributions to a Traditional or Roth IRA from January 1st through the tax-filing deadline (excluding extensions) for the year, generally April 15.

Investment options

• Annuities
• Bank - Fixed Rate CD
• Mutual Funds

Distribution guidelines

Contribution dollars can be withdrawn from the Roth IRA anytime, tax and penalty tax free. Earnings can be withdrawn tax and penalty tax free if this or another Roth IRA has been in existence for at least five years and the distribution is made for one of the following:

• after you have attained the age of 59½
• after your death
• on account of your becoming disabled
• to pay for the purchase or construction of your first home ($10,000 lifetime maximum)

Distributions may be taken in specific amounts, as a lump sum, or as a series of systematic payments.

Qualified exceptions for Traditional and Roth IRA distributions

State Farm does not provide tax or legal advice. You should contact your tax or legal advisor for advice regarding your situation.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 276 KB).

AP2007/12/9691