Roth IRA

Am I eligible to contribute to a Roth IRA?

You are eligible to contribute to a Roth IRA if you (or your spouse if married and filing a joint tax return) have eligible compensation. For IRA purposes, compensation generally is defined as what you earn from working and includes wages, salary, tips, commissions, bonuses, and self-employment income, but not investment or pension income. You also must meet the modified adjusted gross income (MAGI)* limits (refer to the chart below).

Tax-Filing Status	Year	Full Contribution if MAGI is	Partial Contribution if MAGI is	No contribution if MAGI is
Single	2016	$117,000 or less	$117,000–$132,000	$132,000 or more
	2017	$118,000 or less	$118,000–$133,000	$133,000 or more
Married, filing jointly	2016	$184,000 or less	$184,000–$194,000	$194,000 or more
	2017	$186,000 or less	$186,000–$196,000	$196,000 or more
Married, filing separately	2016	N/A	$0–$10,000	$10,000 or more
	2017	N/A	$0–$10,000	$10,000 or more

* Modified adjusted gross income (MAGI) is your adjusted gross income before certain deductions or adjustments to income.

If I have no income but my spouse does, can I contribute to a Roth IRA?

In this situation, you can contribute to a Roth IRA if you and your spouse file a joint income tax return, and your spouse has enough income to cover both your and his IRA contribuitons. The modified adjusted gross income restrictions apply.

What advantages do Roth IRAs have over Traditional IRAs?

One of the greatest benefits you get from a Roth IRA is that you don’t have to pay tax on the earnings that accumulate if you have a qualified distribution. Also you can allow your money to accumulate tax-free for as long as you want, and if you should need to dip into the money early, you can take your contribution amounts out tax- and penalty-free regardless of whether your distribution is “qualified”. As a Roth IRA owner, you can withdraw up to the total amount of your annual contributions (as opposed to any amounts you converted to a Roth IRA) at any time and for any reason tax-free and penalty-free. Plus, if you satisfy certain requirements for a qualified distribution, you can withdraw any earnings on the Roth IRA tax-free. Unlike Traditional IRAs, you also do not have to take required minimum distributions (RMDs) when you reach a certain age. Thus, you can let your savings accumulate tax-free longer and remove your money at your discretion. In addition, you can even leave your Roth IRA assets to your beneficiaries who also will receive tax-free distributions if qualified. Although RMDs are not mandatory during the IRA owner’s lifetime, they are a requirement for Roth IRA beneficiaries.

How can I withdraw money from my Roth IRA tax-free?

Because regular contributions you make to a Roth IRA are never tax-deductible, you can withdraw those amounts at any time and for any reason without tax or penalty tax consequence. The earnings, however, grow tax-deferred and can only be withdrawn tax-free if you have a “qualified” distribution. To be qualified, you must have owned a Roth IRA for at least five years (beginning with January 1 of the tax year for which you made your first Roth IRA contribution/conversion to any Roth IRA) and you are

a first-time homebuyer (subject to certain restrictions),
age 59½, or
disabled.

For example, if you first made a Roth IRA contribution on April 1, 2013, for the 2012 tax year, your five-year clock started on January 1, 2012. Let’s say that in 2017, you are age 63. You’ve then met both the five-year requirement and age 59½ requirement, so you can take a qualified distribution. Your beneficiaries also may take tax- and penalty-free distributions after you die as long as the Roth IRA owner met the five-year requirement.

What happens if I take an early or “nonqualified” distribution from my Roth IRA?

When you take money from your Roth IRA, it comes out in a certain order. The Roth IRA ordering rules dictate that the first dollars to leave your Roth IRA are any regular contributions you’ve made. These always come out tax- and penalty-free, whether the distribution is qualified or nonqualifed. The next dollars distributed are any conversion assets (amounts you converted from your Traditional IRA or rolled over from an employer-sponsored retirement plan), in the order you converted them (by year). These amounts may be subject to early distribution penalty taxes, depending on when the conversion or rollover took place, and whether you have a penalty tax exception. Each conversion and rollover has its own five-year period separate from the Roth IRA five-year period, and each must be met to avoid an early distribution penalty tax on a nonqualified distribution. Once your conversions are exhausted, distributions will dip into your earnings. When you remove earnings in a nonqualified distribution, the earnings will be taxed and are subject to the early distribution penalty tax, unless you meet a penalty tax exception. If you have more than one Roth IRA, the contribution dollars, conversion dollars, and earnings in all of your Roth IRAs are aggregated for purposes of these ordering rules. For example, John owns two Roth IRAs and each one contains $5,000 in contributions ($10,000 total), $2,000 in conversion amounts ($4,000 total), and $500 in earnings ($1,000 total). He wants to take a $13,000 distribution. That distribution is made up of $10,000 in contribution dollars and $3,000 of conversion dollars. The next time he takes a distribution, the first money to come out will be from the remaining conversion dollars, assuming that he does not make any more contributions to either of his Roth IRAs. You must track the assets in your Roth IRA for purposes of the ordering rules and you must complete the appropriate IRS tax forms to file and pay any taxes due with your income tax return.

Am I eligible to convert my Traditional IRA to a Roth IRA?

As of January 1, 2010, anyone can convert a Traditional IRA to a Roth IRA, regardless of income and tax-filing status. Any pretax portion of your Traditional IRA (deductible contributions and earnings) that you convert is taxable in the year of the conversion. Special tax rules apply to 2010 conversions only. Unless you elected otherwise, a 2010 conversion will be divided equally and included in your income in 2011 and 2012.

Why would I want to convert my Traditional IRA to a Roth IRA?

Probably the most common reason for converting to a Roth IRA is the potential for tax-free distributions. Flexibility is another attraction of the Roth IRA. If you find that you really need the money for an emergency or unforeseen expense, you can withdraw regular contributions from Roth IRA tax- and penalty-free at any time and for any reason because you paid the taxes at the time of the conversion. Another reason converting to a Roth IRA may be appealing is that you do not have to take required minimum distributions (RMDs) when you reach a certain age, as is the case with Traditional IRAs. Thus, you can let your savings accumulate tax-free longer and remove your money at your own discretion. You may want to seek professional tax advice to determine if converting to a Roth IRA is right for you.

What should I consider before converting my Traditional IRA to a Roth IRA?

When converting assets from a Traditional IRA to a Roth IRA, you must pay tax on any portion that has not already been taxed. In other words, the taxable amount that you convert will be included in your taxable income in the year of the conversion. As a result, a conversion may bump you into a higher tax bracket. The extra income from the conversion may also affect your eligibility for some tax breaks or financial aid. One alternative for lowering your annual taxable income from the conversion is to do partial conversions over several years.

Can I roll over assets from my employer-sponsored retirement plan to a Roth IRA?

Yes. You may roll over your employer-sponsored retirement savings plan to a Roth IRA. Like with IRA conversions, any pretax amounts rolled over to a Roth IRA must be included in your taxable income in the year they are distributed from your employer’s plan. If you have made designated Roth contributions to your employer-sponsored retirement plan, you also may roll over those assets to a Roth IRA (but not to a Traditional IRA). The five-year period of your Roth IRA applies to those assets once they’re rolled over in the case of a nonqualified distribution from your employer’s plan. If you take a qualified distribution from your designated Roth account, the assets are rolled into your Roth IRA as contributions, so you will not be taxed on them again even if you take a nonqualified distribution from your Roth IRA.