Roth Ira Rules

A ROTH account is one of the various options for individuals to plan for retirement. There are certainly rules and regulations attached to a ROTH account, some of which have changed through the years. It is best to check out the latest ROTH IRA rules and regulations and their effects on your ROTH account.

The ROTH IRA is regarded as an excellent financial planning plan for retirement due to its tax advantages. Furthermore, the flexibility of withdrawal and contribution options makes it more attractive than the traditional IRAs.

No age limits exist for a ROTH IRA, as long as the individual earns taxable income, he or she is qualifies for a ROTH IRA. There is no maximum contribution age either, as compared to the traditional IRA, which does not allow further contribution and instead stipulates mandatory withdrawal at age 70 ½ .

The contribution limit of ROTH IRA is USD 5,000 a year, with the exception of people over the age of 50, who are allowed an additional USD 1,000. According to ROTH IRA contribution rules, the individual must have a modified adjusted gross income of less than USD 120,000 for the year 2009. Married people filing joint income tax returns of up to USD 150,000 are eligible for ROTH IRA.

Most people opt to convert their traditional IRAs to a ROTH IRA, which has more financial benefits. However there are ROTH IRA conversion rules that must be observed. Your ROTH IRA account must not exceed USD 100,000 in order to qualify for conversion. Married taxpayers who file separately do not qualify either. There are two forms of conversion – rollover from a traditional IRA account or transfer. The rollover is allowed only if the conversion is carried out 60 days after the distribution.

A ROTH IRA does not require mandatory withdrawals at the age of 70 ½. This means that your money is allowed to stay and earn interest in the account until you make a withdrawal. Furthermore, the withdrawal is not taxable, as the taxes have been paid at contribution or conversion time. According to ROTH IRA withdrawal rules, no penalty charge is imposed if distribution is made when you are over 59 ½ and your ROTH IRA is more than 5 years. Otherwise, a 10% tax penalty is imposed on early withdrawals.