5f16c463f789252aa15679889236df9d61c6d424 Best IRA Companies: Roth IRA Eligibility

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sestdiena, 2014. gada 16. augusts

Roth IRA Eligibility

Roth IRA eligibility requirements determine who can open a Roth individual retirement account and also who can make contributions towards this type of account. There are restrictions on the type of funds that can be used to make a contribution to an IRA. Any individual who does not have taxable income during the current year can not open a Roth IRA but if one is already opened the individual will not need to close the account.

No contributions can be made to the account in any year where there is no taxable income reported. A Roth IRA offers certain tax advantages and withdrawals made are tax free unless the withdrawal does not meet the IRS guidelines. If the withdrawal is made outside of the requirements laid out by the IRS then a substantial penalty is applied and many of the tax advantages of this account type will disappear.

There are no age requirements for a Roth IRA.  Anyone can open this type of account, so it can be used by young individuals who have a taxable income. Unemployed individuals or those with income from sources that are not taxed during the year can not contribute to the Roth IRA for the year in question but they can still own one of these retirement accounts.

Another Roth IRA eligibility consideration is the annual earnings that are received. There is a maximum income limit in place for a Roth IRA account and if the earnings for the year exceed this income limit then the amount of allowable contributions to the IRA may be lowered or eliminated completely for the year.

Roth IRA eligibility for contributions is based only on the earned income that has been taxed but determining this amount can cause some confusion. Net income is the amount of earnings after taxes and other deductions are taken, while gross income is the specific amount paid by the source of income before deducting taxed and other funds from the earnings.

The modified adjusted gross income is the amount used to determine allowable Roth IRA eligibility for contributions. The MAGI is found on the tax return when federal taxes are prepared. This amount is calculated by adding certain specified income sources back in after the adjusted gross income has been calculated. These sources include foreign income and housing deductions for individuals who work in a foreign country. Other deductions allowed by the IRS that are included in the MAGI include deductions for the cost of higher education, student loans, and IRA contributions.

Roth IRA eligibility can be affected by the income that is earned because there is a cap set on the income for full and partial contributions. If the income for the year exceeds these caps then a full contribution may not be allowed at all. A partial contribution may allowed according to the IRS rules if the partial contribution income cap amount is not exceeded.

Some individuals may find that a Roth IRA account does not fit the retirement goals in place because of the income limits and eligibility rules. Penalties apply if withdrawals are made early and high amounts of taxable income may make contributions impossible for some individuals. For others these accounts can be a great way to save for retirement at the current tax rate.

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