Roth IRAs

Contributions to Roth IRAs are never tax deductible; however, if certain requirements are satisfied, distributions taken from Roth IRAs are tax-free. Unlike a Traditional IRA, the account holder is not required to take mandatory distributions. It's also possible to make contributions to a Roth IRA after reaching age 70 1/2.

In 2019, individuals can contribute to a Roth IRA as long as their Modified Adjusted Gross Income, or MAGI, is less than:

• $137,000 for those filing taxes as single, head of household, or married filing separately (and not living with a spouse)

• $10,000 for married filing separately, and not living with a spouse

• $203,000 for those with a filing status of married filing jointly

The contribution limits for a Roth IRA are $5,500 in 2018 and $6,000 in 2019, or $6,500 and $7,000 with the catch-up contribution that applies to individuals age 50 or older.

Qualified distributions, or withdrawals, from an account must occur after age 59 1/2 and the plan has to be in existence, starting with the date the investor first contributed to a Roth, for at least five years. Non-qualified distributions may be subject to additional tax penalties.

There are also several withdrawal exceptions, allowing for penalty-free distributions before the age of 59 1/2. This holds true as long as the plan has been in existence for at least 5 years. If so, qualified distributions include:

• Those made because the accountholder has become disabled

• Distributions made to the beneficiary of the accountholder's estate

• Up to $10,000 can be withdrawn to pay for a new home or rebuild a new home

Our article on Roth IRA Contribution Limits has up-to-date information on contributions, rollovers, as well as deduction phase out thresholds.

There are many benefits, but also a lot of circumstances where it might be a bad idea to set up a Roth IRA - visit our article to find out more.

Traditional IRA, SIMPLE IRA, 401(k) plans