Roth Ira

A Roth IRA is an individual retirement plan. It was originally called the IRA Plus, to differentiate it from traditional IRA, but people thought Sen. William Roth of Delaware, then-chairman of the Senate Finance Committee, should be recognized for his initiative in pushing this savings program through to fruition. The program allowed those whose incomes were too much to benefit from the tax deductions allowed under traditional IRAs. You may ask, ¡§Can I contribute to a Roth IRA?¡¨

If you have an existing IRA then you will already have a working knowledge of contributions to IRA funds. You can establish a Roth IRA if you are eligible for a regular contribution to a Roth IRA or a rollover (or conversion) to a Roth IRA. You are eligible to make a regular contribution to a Roth IRA although you may already be participating in a retirement plan managed by your employer.

There are just two requirements. First, you or your spouse must have compensation or alimony income equal to the amount contributed. And second, your modified adjusted gross income cannot exceed certain limits. Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services; it also includes commissions, self-employment income, and taxable alimony and separate maintenance payments.

You may now be wondering, ¡§How much can I contribute to a Roth IRA?¡¨ Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified annual gross income (AGI) is not above:

„h $160,000 for married contributors filing jointly or qualifying widow (or widower) „h $100,000 for married contributors filing separately and you lived with your spouse at any time during the year, and „h $110,000 for single, head of household, or married contributor filing separately and you did not live with your spouse at any time during the year.

The total on your IRA contributions for a year has a maximum of $4,000. If you are contributing only to a Roth IRA, then monitoring your contributions should be easy. But if you also contribute to a traditional IRA simultaneously with a Roth IRA, you need to make sure that your total contributions to the two accounts do not exceed the $4,000 maximum.

Additionally, for the maximum contribution, the modified AGI limits are $95,000 for single individuals and $150,000 for married individuals filing joint returns. The amount you can contribute is reduced gradually when your AGI breaches the $95,000 or $150,000 mark but still below the income limits mentioned above. The privilege to contribute is then completely eliminated when your modified gross income exceeds $110,000 (single) or $160,000 (married filing jointly).

Unlike a traditional IRA, your contributions to a Roth IRA are not deductible from your taxes, but distributions are generally tax-free. Although Roth IRA is generally believed to be a superior investment instrument, the non-deductibility feature may impinge on your cash flow. It is always good to check if you can afford the contribution and the tax, as you try to answer your question, ¡§Can I contribute to a Roth IRA?¡¨