How Roth IRA Rules Differ From Normal IRA Accounts?

By M.J. Kelly

  • Overview

    If you are thinking about setting up an individual retirement account, understand how a Roth and a traditional IRA differ. Both plans offer tax-sheltered savings to qualified taxpayers, but the rules for eligibility, contributions and distributions vary. Look at the differences here and see which IRA makes sense for you.
  • Identification

    You make contributions to your Roth IRA using after-tax dollars and you may take tax-free withdrawals from the account. Contributions to a traditional IRA may be tax deductible, but your withdrawals will be taxed.
  • Features

    Contributions to a Roth IRA are not tax-deductible. In contrast, if you meet certain requirements, you may deduct some or all of your traditional IRA contributions on your federal tax return. If you are single and you do not participate in a retirement program at work, you are entitled to deduct your traditional IRA contributions. Likewise, if you file a joint return with your spouse and neither of you are covered by a retirement program at work, you may deduct all of your contributions to a regular IRA.

  • Income Limits

    Your contributions to a traditional IRA are limited if you already have a retirement account at work. As a single person, you may not contribute to a traditional IRA once your income exceeds $62,900. Similarly, a couple earning more than $104,900 is not allowed to contribute to a normal IRA. You may contribute to a Roth IRA as long as your income does not exceed $120,000 if you are unmarried or $176,000 if you are filing a joint return with your spouse.
  • Contributions and Withdrawals

    Both the traditional and the Roth IRA rules allow you to contribute up to $5,000 per year if you are under 50 years of age. Once you turn 50, you can add another $1,000 every year. Your earned income must be at least as much as your contributions for a particular year. You must begin to take minimum required distributions from your regular IRA account once you reach age 70 1/2. However, you are not required to withdraw funds from a Roth IRA at any particular time. You may allow the Roth account to grow tax-deferred until you either need the funds or you choose to leave it to a beneficiary.
  • Considerations

    Usually you must wait until you reach 59 1/2 years old before you may take withdrawals from either a Roth or a normal IRA without paying a 10 percent penalty. Roth IRA regulations, however, allow you to use funds early to pay for an education or a first home when your account is at least 5 years old.
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