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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 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However, since you have already paid taxes on the money you've contributed to the account, contribution dollars can be withdrawn at any time without tax consequences1.
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 youre 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 2013 $112,000 $112,000 - $127,000 $127,000 Married Filing Jointly 2013 $178,000 $178,000 - $188,000 $188,000 Married Filing Separately 2013 N/A $0 - $10,000 Above $10,000 Single/Head of Household 2012 Up to $110,000 $110,000 - $125,000 Above $125,000 Married Filing Jointly 2012 Up to $173,000 $173,000 - $183,000 Above $183,000 Married Filing Separately 2012 N/A $0 - $10,000 Above $10,000
Tax Year Under Age 50 Age 50 or Older 2013 $5,500 $6,500 2012 $5,000 $6,000
You can make annual contributions to a Roth IRA of up to $5,000 for 2012 or $5,500 for 2013 or 100 percent of your earned income, whichever is less. An aggregate of $10,000 for 2012 and $11,000 for 2013 can generally be contributed per married couple ($5,000 per IRA for 2012 or $5,500 for 2013) provided that either you or your spouse has earned income of at least that amount.
Contribution limits are based on your adjusted gross income see table above. The 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 of $1,000.
You can make annual contributions to a traditional or Roth IRA from January 1 through the tax-filing deadline (excluding extensions) for the year, generally April 15.
Contribution dollars may be withdrawn at anytime, tax and penalty-tax free. Earnings on the account accumulate on a tax-deferred basis and can be withdrawn free from federal income taxes, if the withdrawal is a qualified distribution as defined below.
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 applies to the 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. The credit ranges from 10 percent to 50 percent of your contributions and is based on your filing status, adjusted gross income, and tax liability. Special rules apply.
Visit the IRS website or talk to your tax advisor for more information.
- 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 because you:
- Have attained the age of 59 1/2,
- Become disabled, or
- Need 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.
Note: there are some exceptions to the 10 percent tax penalty for traditional and Roth IRA distributions.
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 federal 10 percent tax penalty.
Since January 1, 2010, anyone can convert to a Roth IRA the two previous eligibility restrictions no longer apply.
Your local registered State Farm Agent is ready to help you think through the decision. You can also browse the Roth IRA Conversion Most Frequently Asked Questions. You should consult your tax advisor for specific guidance and advice.
1Earnings may be taxed at your tax rate, and a 10 percent tax penalty for an early withdrawal of these earnings may apply.
MPC #120885 exp 04.14