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Roth IRAs
The Roth IRA differs from a Traditional IRA in that funds contributed are not tax deductible. These contributions consist of after-tax dollars. IRA earnings always grow tax deferred. When funds are withdrawn from a Roth IRA, interest earned is tax-exempt as long as the Roth IRA holder meets certain criteria at the time of withdrawal.
- Investors would benefit from a Roth IRA if they:
- Expect to be in the same or an even higher tax bracket at retirement age,
- Already contribute to a 401k or other company plan, or
- Want to continue to contribute to an IRA Plan after age 70 ½.
- Eligibility to contribute to a Roth IRA is based on your Modified Adjusted Gross Income (MAGI). You may be actively contributing to a 401(k) Plan and also be eligible to contribute to a Roth IRA.
- Contributions can be made up until your tax-filing deadline, generally April 15, for a prior year contribution.
- Eligible individuals may contribute the lesser of the annual contribution limit or 100% of their earned income to a Roth IRA.
- Individuals over age 70 ½ may continue to make contributions to a Roth IRA as long as they have earned income.
- You may contribute to both a Traditional and a Roth IRA for a combined total up to the annual contribution limit.
| Year |
Annual Contribution Limit |
| 2007 |
$4,000 |
| 2008 |
$5,000 |
| 2009 and after |
$5,000 plus cost of living adjustments |
Contribution Table
| If You are: |
And Your 2007 Modified Adjusted Gross Income (MAGI) is: |
And Your 2008 Modified Adjusted Gross Income (MAGI) is: |
Then: |
| Single Individual |
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- Contribution amount can be up to annual limit
- Contribution amount decreases as income increases
- Customer is not eligible to contribute
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| Married Individual Filing Jointly |
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- Contribution amount can be up to annual limit
- Contribution amount decreases as income increases
- Customer is not eligible to contribute
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| Married Individual Filing Separately |
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- Not Eligible to contribute
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- Individuals who reach age 50 or older before the end of the taxable year may be eligible to contribute an additional $1,000 to a Roth IRA as a "catch-up" contribution.
- Participants in a Roth IRA Plan do not have a required minimum distribution at age 70½. You can continue to make contributions after the age of 70 ½ as long as you have earned income.
- Qualified distributions are tax free. In order to avoid taxes and IRS penalties on a withdrawal from a Roth IRA, you must meet the following criteria:
- Hold the account for at least five years and one of the following:
- Age 59 ½
- Purchasing a first home
- Disabled
- Death of participant
If you do not meet the above criteria, the withdrawal is considered “non-qualified.” Any portion of the non-qualified withdrawal that represents earnings will be included as income for tax purposes. In addition, the earnings included as part of a non-qualified withdrawal will be subject to a 10% IRS early distribution penalty.
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