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Roth IRA

A Roth Individual Retirement Account (IRA) is a personal savings plan that offers tax benefits to encourage retirement savings. In 2009 and 2010, you can contribute up to the lesser of $5,000 (or $10,000 if married filing a joint return) or 100 percent of your taxable compensation to a Roth IRA. In addition, individuals age 50 or older can make an extra "catch-up" contribution of up to $1,000. Contributions to a Roth IRA are not tax-deductible, but the funds grow tax deferred and distributions are tax-free under certain conditions.

Key Strengths:

  • Qualified distributions are completely tax-free (and penalty-free)
  • You can contribute after age 70½ (as long as you have taxable compensation)
  • You have flexibility in withdrawing your funds prior to retirement
  • You are not required to take any distributions while you are alive
  • Contributions can be made even if you are covered by an employer-sponsored retirement plan
  • IRAs offer a wide range of investment choices
  • $1,000,000 (and in some cases more) of IRA assets are protected in the event of bankruptcy under federal law

How do I become eligible for a Roth IRA?

Generally speaking, eligibility depends on your modified adjusted gross income (MAGI) for a year and your tax filing status. Contrary to a traditional deductible IRA, the income limits apply whether or not you actively participate in an employer's retirement plan. In 2010, you can contribute the full amount to a Roth IRA:

  • If you are single and your MAGI does not exceed $105,000 (partial contributions allowed if MAGI is between $105,000-$120,000)
  • If you file jointly and your MAGI does not exceed $166,000 (partial contributions allowed if MAGI is between $167,000-$177,000)

Coordination with Contributions to Other IRAs

The Roth IRA contribution limit is reduced by any contributions made to other Traditional IRAs by the same individual for the same tax year.

Tax-free Earnings

Even those who are eligible for a tax-deductible IRA should consider a Roth IRA. Depending on your age and tax bracket, tax-free withdrawals in retirement can more than make up for a tax deduction today.

ROTH IRA Conversions

  • Beginning 1/1/2010, all taxpayers regardless of income or tax filing status are allowed to convert to a Roth IRA.
  • MAGI phase out rules for Roth Contributions still apply.
  • Traditional and SEP IRAs maybe converted. Simple IRAs are eligible for conversion after two years of participation.
  • Retirement plan accounts may be eligible for conversion.
  • Distributions from a Traditional IRA may be converted to a Roth IRA without the 10% early distribution penalty tax.

Contact Morgan Keegan today for more information about our Roth IRAs.