5f16c463f789252aa15679889236df9d61c6d424 Best IRA Companies: Important Roth IRA Rules To Know And Understand

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piektdiena, 2014. gada 9. maijs

Important Roth IRA Rules To Know And Understand

There are a number of Roth IRA rules that must be closely followed to receive the benefits that this type of individual retirement account can offer. If any of these rules are not understood clearly the result could be a large tax penalty. There are eligibility requirements, income and contribution caps, and other rules that must be followed closely or the result could be the loss of some retirement savings. 

The rules for these accounts are set by the Internal Revenue Service and the allowable contributions must come from taxable income that has already had taxes deducted. This is due to the fact that the funds are not taxed or penalized as long as any withdrawals from the account are made within the age limits set.

Anyone can open an IRA regardless of age as long as retirement age has not been reached. Once retirement age is reached then the Roth IRA rules eliminate the ability to make contributions to this account. Only taxable compensation can be used for contributions and this means that once taxable income is no longer available contributions to the account are not allowed. 

The IRS has established this Roth IRA rule to eliminate individuals who do not pay taxes to benefit from the tax advantages that this account offers. Funds obtained through inheritances, pension and other retirement payments, and other methods that are not taxed as income can not be used to contribute to a Roth IRA. The IRS has determined that this would be an unfair benefit and the Roth IRA rules prohibit contributions from money that has not been taxed as income.

Roth IRA rules also outline a minimum and maximum annual income limit for this type of retirement account. The minimum amount can be zero if an individuals chooses not to make any contribution for the year or has no earned income which can be used for contributions. If contributions exceed the earned income declared for the year for an individual then the IRS will notice this discrepancy and investigate. 

The maximum income amount for Roth IRA contributions may change each year due to inflation factors. In 2010 the maximum income limit for a full contribution during the year was $105,000 for single filers, $169,000 for joint filers, and $0 for married couples who file separately.

The maximum income Roth IRA rules apply to contributing the full amount allowed to this account during the year. If the income earned for the year exceeds this maximum amount it may still be possible to make a contribution to the Roth IRA in a smaller amount. Single filers can earn up to $120,000 and still make a partial contribution. For married couples who file jointly a partial contribution can be made if the income for the year is $179,000 or less. Couples who are married filing separately can make a partial contribution as long as the annual income does not exceed $10,000. Understanding the Roth IRA rules will ensure that the money set aside for retirement will be used for this purpose instead of paying penalties to the IRS.

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