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A Roth IRA lets you accumulate earnings on a tax-deferred basis and 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However, since you have already paid taxes on the money you've contributed to the account, contribution dollars can be withdrawn at any time without tax consequences 1.
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 if you're eligible to contribute to a Roth IRA:
|Tax Filing Status||Tax Year||Full Contribution||Partial Contribution||Not Eligible|
|Single/Head of Household, or married filing separately and you did not live with your spouse at any time during the year||2019||Less than $122,000||$122,000 to less than $137,000||$137,000 and above|
|Married Filing Jointly or qualifying widow(er)||2019||Less than $193,000||$193,000 to less than $203,000||$203,000 and above|
|Filing Separately and lived with your spouse at any time during the year||2019||N/A||$0 to less than $10,000||$10,000 and above|
|Single/Head of Household, or married filing separately and you did not live with your spouse at any time during the year||2018||Less than $120,000||$120,000 to less than $135,000||$135,000 and above|
|Married Filing Jointly or qualifying widow(er)||2018||Less than $189,000||$189,000 to less than $199,000||$199,000 and above|
|Married Filing Separately and lived with your spouse at any time during the year||2018||N/A||$0 to less than $10,000||$10,000 and above|
|Tax Year||Under Age 50||Age 50 or Older|
You can make annual contributions to a Roth IRA of up to $6,000 or 100% of your earned income, whichever is less. Current law permits most couples (who are legally married and filing jointly) to contribute up to $6,000 each to their IRAs in 2019 as long as their combined compensation is at least $12,000. This allows a spouse with lower or no compensation to take advantage of the tax savings offered by an IRA. The annual contribution limits apply to the combination of all your Traditional and Roth IRAs.
If you are age 50 or older, you may make an additional $1,000 "catch-up" contribution to your IRA.
Contribution dollars may be withdrawn at anytime, tax and penalty-tax free.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% to 50% 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.
Note: There are some qualified exceptions to the 10% 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% tax penalty until withdrawal
You can also browse the Roth IRA Conversion most Frequently Asked Questions. It is important to note if you convert pre-tax retirement dollars to a Roth IRA you may owe income taxes. You should consult your tax advisor for specific guidance and advice.
You may make only one IRA tax-free rollover in a rolling twelve-month period, regardless of the number of IRAs you own. This includes Traditional, Roth, SEP, and SIMPLE IRA's.
The following transactions are not subject to the one rollover per 12-month limitation:
1 Earnings may be taxed at your tax rate, and a 10% tax penalty for an early withdrawal of these earnings may apply.
For educational purposes only.
Neither State Farm® nor its agents provide tax or legal advice.
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