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However, since you have already paid taxes on the money you've contributed to the account, contribution dollars can be withdrawn at anytime without tax consequences.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:

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Contribution dollars may be withdrawn at anytime, tax and penalty tax free. Earnings on the account accumulate on a tax-deferred basis and can be withdrawn free from federal income taxes, provided that they are taken according to qualified distribution guidelines.

The Saver’s Credit may provide a tax credit for those who save for retirement. You may be able to take a credit of up to $1,000 – up to $2,000 if filing jointly. The credit is designed to help offset part of your first $2,000 contributed to a Traditional IRA, Roth IRA, SIMPLE IRA, or 401(k) account by reducing the amount of federal income tax you owe dollar-for-dollar, however it is not a refundable tax credit. The credit ranges from 10% to 50% of your contributions and is based on several factors including your filing status, adjusted gross income, and tax liability. Special rules apply. See www.irs.gov or your tax advisor for more information.


Eligibility requirements for Roth IRA contributions

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:

Adjusted gross income
Your tax
filing status		 Tax year Full contribution Partial contribution Not eligible
Single/Head of Household 2009 Up to
$105,000		 $105,000 -
$120,000		 Above
$120,000
Married Filing Jointly 2009 Up to
$166,000		 $166,000 -
$176,000		 Above
$176,000
Married Filing Separately 2009 N/A $0 - $10,000 Above
$10,000
Single/Head of Household 2010 Up to
$105,000		 $105,000 -
$120,000		 Above
$120,000
Married Filing Jointly 2010 Up to
$167,000		 $167,000 -
$177,000		 Above
$177,000
Married Filing Separately 2010 N/A $0 - $10,000 Above
$10,000


Annual contribution limits

You can make annual contributions to a Roth IRA of up to $5,000 or 100% of your earned income, whichever is less. An aggregate of $10,000 can generally be contributed per married couple ($5,000 per IRA) 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 $5,000 and $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.

Tax year Under age 50 Age 50 or older
2009 $5,000 $6,000
2010 $5,000 $6,000


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


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.

Exceptions to the 10% penalty for Traditional and Roth IRA distributions

What is a Roth IRA Conversion?

A conversion is a taxable movement of funds from a Traditional, SEP, or SIMPLE (after two years) IRA to a Roth IRA.   A conversion may also include a rollover conversion from a Qualified Retirement Plan (QRP), including a 401(k), 403(b), 457(b), or profit-sharing plan to a Roth IRA.  Amounts converted are not subject to the 10% tax penalty.

Are you eligible for a Roth IRA Conversion?

  • Through 2009, you are eligible to convert unless you are married filing separately or your Modified Adjusted Gross Income (MAGI) is $100,000 or more.
  • Beginning January 1, 2010, anyone can convert to a Roth IRA – the two previous eligibility restrictions are repealed by the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005.

“Is a Conversion Right for You?” With guidance and personal support, your local State Farm Agent is ready to help you think through the decision. Answers to Roth IRA Conversion Most Frequently-Asked Questions.

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 525 KB) .

AP2009/12/3624