Roth IRA Details

Even if you are permitted to make a deductible IRA contribution, you may prefer to make a nondeductible contribution to a Roth IRA because withdrawals can be tax-free.

For Roth IRA distributions to be tax-free, they have to be made after the five-year period beginning with the year the account was established, and be made after 59-1/2, on account of death or disability, or (up to $10,000) for a first-time home purchase. That purchase can be for you, your spouse, your child, or even your grandchild.

More on the Non-Deductible Roth IRAs:

• If a Roth IRA payout doesn’t meet these conditions, you’re treated as first withdrawing nontaxable Roth IRA contributions; the balance (representing earnings) is taxed and is subject to a 10% penalty for pre-age-59-1/2 withdrawals, unless one of several exceptions apply.

• You can make Roth IRA contributions even after you attain age 70-1/2 (if you have sufficient compensation income), and you do not have to take minimum lifetime distributions from a Roth IRA after you reach that age as you do with a regular IRA. That makes Roth IRAs an excellent wealth-building vehicle for your family.

• You have this choice only if your Adjusted Gross Income (AGI) doesn’t exceed certain levels. For joint return filers, the maximum annual Roth IRA contribution phases out over $150,000 to $160,000 of modified AGI. It’s $95,000 to $110,000 for singles. Contributions to Roth IRAs can be made up to the amount that would be allowed as a contribution to a traditional IRA ($2,000 for 2001), reduced by the amount you contribute for the year to non-Roth IRAs.

• If you can’t make a deductible IRA contribution or a Roth IRA contribution, you still can make a nondeductible contribution to a regular IRA. The earnings in a nondeductible IRA are tax-deferred until withdrawn (and are subject to a 10% penalty if withdrawn before age 59-1/2, unless one of several exceptions apply). Unlike a Roth IRA, you must begin making minimum withdrawals by April 1 of the year following the year you attain age 70-1/2. The nondeductible contributions themselves aren’t taxed when they are withdrawn - only the earnings are taxed. If you’ve made deductible and nondeductible IRA contributions, a portion of each IRA distribution is treated as coming from nontaxable IRA contributions (and the rest is taxed).

For more information about RIA: https://www.RIAhome.com.