The Roth IRA presents a unique investment opportunity because of its tax-free advantages. Unlike Traditional IRAs, Roth IRA contributions are not deductible, but distributions, including earnings, can be withdrawn tax-free under certain conditions. However, not everyone is eligible for a Roth IRA. Eligibility is dependent upon adjusted gross income.
You may withdraw contributions (but not earnings) at any time, tax and penalty-free. Distributions from Roth IRAs are considered to be either "Qualified" or "Non-qualified" distributions.
- Qualified distributions are not subject to taxation or penalty. A qualified distribution is one that is made after five years (beginning with the first day of the year in which your first contribution or a conversion was made) and you reach age 59 1⁄2, become disabled, are purchasing a first home ($10,000 lifetime maximum), or death occurs.
- Non-qualified distributions are subject to taxation and a 10% penalty to the extent that they exceed total contributions. The 10% penalty is waived in certain limited circumstances. Unlike Traditional IRAs, you are not required to take minimum distributions at age 70 1⁄2.
Converting a Traditional IRA to a Roth IRA
Converting money or securities from a Traditional IRA or employer-sponsored retirement plan into a Roth IRA allows you to take advantage of the tax-free benefits of a Roth IRA. Income taxes must be paid on all pre-tax dollars being converted in the year of the conversion.
Please consult your tax advisor to determine if a Roth IRA or Roth conversion is appropriate for you.
For current Roth IRA contribution and eligibility limits, click here.