Roth IRA is a type of IRA which contributions are made from after-tax assets. All distributions from Roth are free of tax and have no tax impact with IRA transactions. You can also leave your money with Roth for as long as you want to. Aside from these basic Roth IRA rules there exist a specific set of rules for this account. These are eligibility rules, contribution limits, withdrawal/distribution rules and income limits.
With Roth eligibility is simple, as long as you are having taxed compensations such as salaries, wages, tips, bonuses and other income that are from serving others then you are eligible for a Roth IRA account.
There are certain income requirements that should be met before you can contribute to a Roth IRA account. These requisites shall be discussed later with Roth IRA income Limits. Basically there are no changes from the contribution limits of the year 2008 up to 2010. It remains at $5000 and its catch up limit is $6000. Catch-up means that if you are a year older now after turning 50 you can have an additional $1000 to your contribution.
Roth IRA income limits are as follows:
- With adjusted gross income of $105,000, single filers, head of households and married couples filing separately that are living separately is permitted to have a full contribution. But contributions are no longer allowed if their adjusted gross income would exceed $120,000.
- An adjusted gross income of $167,000 for joint filers gives them the right for full contribution and is barred to do so with an adjusted gross income exceeding $179,000.
- With married couples that are filing separately and living with each other, contributions will not be allowed if their adjusted gross income is more than $10,000.
As I have said, withdrawals or distributions from this type of IRA are tax free but withdrawals made before reaching the age of 59 Â½ will be subjected to a 10% penalty. Also distributions should be made after five years from the first contribution you have made with your Roth IRA account.