The Roth IRA allows people to save for their retirements by contributing a specified amount of their employment income to a Roth account. This is a popular and rewarding type of retirement savings, but before you open an account, it is advisable to learn more about the Roth IRA rules.
With a Roth IRA account, also commonly referred to as an individual retirement account, the contributions are non-deductible and therefore make it possible to have your earnings grow tax-free.
The earnings you make with a Roth account are also either tax-deferred or tax-free. You may be subject to paying taxes when you contribute to the account, however you will not be taxed upon withdrawing or distributing the amount within. There are of course some restrictions in place.
Depending on which is less, either $5,000 or 100% of your gross income is the maximum contribution amount in any given year. Another Roth IRA rule in order to open a Roth account is your income must be tax deductible. In regards to the maximum gross income earnings allowed for this savings program, you can’t make more than $120, 000 per year if you are single or $10,000 if you aren’t single but file an individual tax return. If you are married and file joint returns, $166, 000 is the maximum gross annual income allowed.
Make sure your IRA contributions do not exceed the annual amount allowed. Both Roth accounts and traditional accounts count towards the same maximum limit allowed so balance your contributions accordingly.
When it comes to withdrawing from your Roth account, you can begin to do so five years after the first contribution is made. The distributions made will not be taxed if you are over 59. 5 years of age or if you are suffering a disability. Another way to withdraw Roth IRA funds without penalty is if you are buying or building your first home. These Roth IRA rules are critical so check your specific situation before proceeding.
Make sure that when you make contributions or withdrawals that you always follow the applicable IRA rules for your retirement account. If you own a Roth IRA you’ll need to follow the Roth IRA rules, as they are different than those for traditional IRA’s.
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