Roth IRA Rules & Regulations

Roth IRA contribution limits at $5,000; 3 methods of converting to Roth IRA: rollovers, same trustee transfers and trustee to trustee transfers

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Understand Your Roth IRA

Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.As we well know, a Roth IRA is an excellent wealth building tool and it can help you prepare and financially plan for your retirement. While this is common knowledge, there are many rules and regulations associated with a Roth IRA that most people do not know about. If you have a Roth IRA, you should be informed of all current rules, as they change often. Roth IRA rules can be complex, but this article will give you a good grasp of the important things you should know about your retirement account.

Age Limits and Rules on Roth IRA

With a Roth IRA, there are no age limits. This means that as long as you are earning taxable income, you may open a Roth IRA. It also means that your contributions to the account are not based on your current age. The Roth IRA rules allow you to continue contributing to the account for as long as you want. This is not the case with a traditional IRA, which requires you to cease contributions and take mandatory distributions at age 70 1/2.

Income and Contribution Limits of Roth IRA

Your earned income and your annual allowed contribution limits are two very important Roth IRA rules to be familiar with. The annual Roth IRA contribution limit remains at $5,000 per year. The exception to this rule is if you are over the age of 50. You are then allowed an additional $1,000 as a catch-up contribution. This makes the final limit $6,000 for individuals over the age of 50. To be eligible for Roth IRA contributions, you must have a modified adjusted gross income of less than $120,000 in 2009. This amount may increase slightly next year. It is best to check each year to see if the income regulations have been altered.

Transfers and Converting to a Roth IRA

Many people have chosen to convert their traditional IRA to a Roth IRA. The Roth account has many benefits that you would not be entitled to with the traditional account, such as no required distribution and tax-free withdrawals. There are rules that must be followed when making a transfer or a conversion. To qualify for a conversion, the IRS states that your adjusted gross income cannot exceed $100,000. This is the amount for those who file their taxes with the status of single, married filing jointly and head of household. The Roth IRA rules do not allow taxpayers who are married and filing separately to make any Roth conversions. The IRS will recognize three methods of converting. They are rollovers, same trustee transfers and trustee to trustee transfers. Many people choose to rollover their distributions from a traditional IRA into a Roth IRA. This is allows as long as the conversion takes place after 60 days of the distribution. To avoid this 60 day waiting period, many opt to use the other methods of transferring. A same trustee transfer is when the trustee is the same for the traditional and Roth IRA. A trustee to trustee transfer involves transferring your traditional IRA to a new Roth IRA trustee.

Distribution and Withdrawal Rules of Roth IRA

Unlike a traditional IRA account, the Roth IRA does not require you to make mandatory withdrawals. This means that after you have reached 70 1/2, you will not be required to take any distributions from the account. This IRA withdrawal rule allows you to keep saving until you decide to remove the money. This is one of the great benefits of a Roth IRA. In addition, since your contributions were made after paying taxes, all of your withdrawals after the eligible withdrawal age, will be tax free. Your Roth IRA is the best way to provide tax-free IRA retirement income. As long as you are over 59 1/2 and have had the Roth IRA for five years, you may take distributions from the account. If you have not met these requirements, you will be charged a 10% tax penalty for early withdrawal. The Roth IRA rules regarding withdrawals do not change from one year to the next.

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

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