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Guidelines for Roth IRA accounts

Here are the rules and regulations for working with Roth IRA accounts:

  • Investors may contribute up to $3,000 annually. The amount increases to $3,500 for investors 50 years old or older.
  • Income limits to make the maximum contribution:
    • Married filing jointly -- adjusted gross income at or below $150,000;
    • Single filers -- adjusted gross income at or below $95,000.
  • There are two ways to open a Roth IRA:
    • cash contributions;
    • convert a traditional IRA to a Roth.
  • Earnings grow tax-free.
  • Contributions are not tax-deductible.
  • Distributions are tax-free provided they are made after age 59 and the account has been open for five years.
  • Tax and penalty-free withdrawals may be taken before age 59 for the following reasons:
    • First-time purchase of a home (up to $10,000);
    • Disability as defined by Internal Revenue Code;
    • Death of the IRA accountholder.
  • State laws vary, check to see if your state protects Roth IRAs if you declare bankruptcy.
  • There is no required minimum distribution during account owner's lifetime.

-- Updated: March 27, 2002


See Also
Still time to cut taxes with IRAs
Is a Roth IRA for you?
8 tips for understanding 401(k)s
Savings glossary
More savings stories

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