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Roth Individual Retirement Accounts

What is a Roth IRA?

A Roth IRA is an individual retirement account created by the Taxpayer Relief Act of 1997. Named for former Senate Finance Committee Chairman William Roth, Jr., this IRA offers more incentives to boost your retirement savings, as well as more ways to use your nest egg.

This article is not intended as tax advice. Contact a tax professional.

How does a Roth IRA work?

Unlike traditional IRAs, contributions to a Roth IRA are never tax-deductible. However, the money in your Roth IRA, including earnings, can be withdrawn tax-free. Of course, you must conform to the plan provisions to get this tax-free advantage. Some the differences of a Roth IRA from a traditional IRA are:

  • You cannot deduct contributions to a Roth IRA.
  • If you satisfy the requirements, qualified distributions are tax-free.
  • You can make contributions to your Roth IRA after you reach age 70 ½.
  • You can leave amounts in your Roth IRA as long as you live.

This article is not intended as tax advice. Contact a tax professional.

Am I eligible to contribute to a Roth IRA?

You are eligible if you earn compensation and your income is less than limits set by Congress. A single filer who has modified adjusted gross income (MAGI) up to $112,000 can make the full Roth IRA contribution for that year. Each spouse filing a joint federal income tax return showing a MAGI up to $178,000 can make the full Roth IRA contribution for that year. Some people with higher MAGI may be able to make smaller contributions.

Single filer for 2014: up to $114,000 for full contribution $114,000 to $129,000 subject to phase out and over $129,000 no contribution allowed.

Married filing jointly for 2014: up to $181,000 full contribution $181,000 to $191,000 a reduced contribution and over $188,000 no contribution allowed

Married filing separately for 2014: up to $10,000 – a reduced amount and over $10,000 zero contributions

If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.

  1. Start with your modified AGI.
  2. Subtract from the amount in (1):
    1. $181,000 if filing a joint return or qualifying widow(er),
    2. $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
    3. $114,000 for all other individuals.
  3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).
  4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
  5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit

This article is not intended as tax advice. Contact a tax professional.

How much can I contribute to a Roth IRA?

If you meet the eligibility tests described above and you are under age 50, you can contribute up to $5,500 for 2014. For owners age 50 and older, your limit for2013 and 2014 is $6,500.

This article is not intended as tax advice. Contact a tax professional.

What happens if my (our) income is too high to make a full contribution to a Roth IRA?

A smaller contribution can be made if your MAGI is between $114,000 and $129,000 for single filers, and between $181,000 and $191,000 for joint filers. When income exceeds $129,000 for single filers and $191,000 for joint filers, a regular Roth IRA contribution cannot be made for that year.

This article is not intended as tax advice. Contact a tax professional.

Can I still contribute to a Roth IRA if I participate in an employer-sponsored retirement plan?

Yes, and you can contribute past age 70½, as long as you continue to earn compensation.

This article is not intended as tax advice. Contact a tax professional.

Will my Roth IRA affect the amount that I can contribute to my employer sponsored retirement plan?

No. The amount you contribute to your 401(k) or other employer-sponsored plans will not be affected by your Roth IRA. However, you must conform to the plan contribution limits for your employer-sponsored plan.

This article is not intended as tax advice. Contact a tax professional.

Can I have both a traditional and a Roth IRA?

Yes, you can maintain both types of IRAs at the same time. You can even make contributions to both types of IRAs in the same year. But your contributions to both Roth and traditional IRAs cannot exceed the maximum contribution.

This article is not intended as tax advice. Contact a tax professional.

When can I start taking tax-free distributions from my Roth IRA?

You can withdraw most contributions without paying income tax at any time. Distributions are treated as first being attributable to your contributions until all of your contributions have been distributed.

There are two requirements to qualify for tax-free withdrawals of the income your Roth IRA has earned. First, your Roth IRA must meet the “five-year test.” In other words, it must be five years after the first year for which Roth contributions were made. Second, one of the following conditions must apply:

a.You are over age 59½

b.Funds are going to your beneficiary upon your death

c.You have become disabled

d.You are using the funds for a first-time home purchase.

If you have made a conversion contribution, please read further for taxation issues regarding conversions.

This article is not intended as tax advice. Contact a tax professional.

Do I have to take minimum distributions when I reach age 70½?

No. The Roth IRA is more flexible than a traditional IRA because you are not required to start taking minimum distributions when you reach age 70½. If you don’t need the cash, you can let your money continue to grow tax-free for as long as you like. However, minimum distributions must be made to your beneficiaries following your death.

This article is not intended as tax advice. Contact a tax professional.

The information and examples presented above are based on current tax laws and regulations that are subject to change at any time. Consult your tax advisor regarding the deductibility of IRA contributions and changes.

Offer available to residents in the metropolitan statistical areas of Charleston, Columbia, and Florence as defined by the U.S. Office of Management and Budget.

Early withdrawal fee of $10 each occurrence and an IRS penalty of 10% of the amount withdrawn, $75 transfer fee to another financial institution. Please refer to your IRA account disclosure statement for other details relating to your IRA.