Roth IRA Rules – Navigating the Guidelines

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Roth IRA Rules – Navigating the Guidelines

For many people who are interested in beginning the type of long range planning necessary to secure a retirement for themselves and their families, the idea of an individual retirement account (IRA) is an attractive notion. Still, whenever these acronyms are tossed about by government ad financial types, the eyes of the average layperson have a tendency to glaze over – even when the subject being discussed is really not as complex or difficult as it sounds. If you are one of those people who find yourself dreading the thought of researching what you’re sure will be a complex set of guidelines for your retirement account choice, you can rest easy with the knowledge that Roth IRA rules are about as straightforward as they could possibly be.

Who’s eligible?

Before the rules can even apply to you, your eligibility will have to be determined. There is really only one hard and fast rule for eligibility: you must have some form of income, and it must not exceed a certain limit – $120,000 for single individuals and $177,000 for couples. Beyond that limit, the tax-exempt nature of the Roth IRA is unavailable.

How much can I contribute?

The second most important rule involves the amounts that can be placed into your account. Basically, you can only contribute a total of $5,000 in any calendar year, though that number will now be adjusted to compensate for inflation. Older workers – those over the age of fifty – who have only recently begun their IRAs are allowed what is called a «catch-up» contribution amount that is limited at an extra one thousand dollars a year over the current limit.

Can I transfer my money?

Of course, there are also Roth IRA rules regarding your ability to transfer your account funds from one type of IRA to another or from one institution to another. For instance, you can transfer your entire account balance from an IRA account to a Roth account, convert the account from one type to another, or execute what is called a «rollover» of any contributions that you have made into your traditional IRA. The only stipulation on these rollovers is that they must be made within a two month period after they are first placed in your traditional account.

How do I get it back?

The absolutely most important rule of all, however, has to do with getting your money out of the account when you retire. There are only two types of withdrawals that can be made: the qualified, normal withdrawal that can start at the designated retirement age for the account, and early withdrawals. Early withdrawals carry a stiff ten percent penalty on all moneys withdrawn, unless you become disabled or are using the money to purchase your own home.

Knowing and understanding these Roth IRA rules can make your ownership of the account a much more enjoyable experience. As you can see, the rules are fairly simple, though it is always advisable to educate yourself further before you open any retirement account. And, of course, you should always talk to your account representative or tax advisor before making any significant changes to your portfolio.

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