The U.S. Congress authorized the first individual retirement accounts (IRAs) as part of the 1974 Employee Retirement Income Security Act (ERISA), but these early IRA were limited to only self-employed taxpayers, and workers who were not covered by a qualified retirement plan at work. The Taxpayer Relief Act of 1997 authorized the Roth IRA. This new type of IRA has some significant differences from the traditional IRA, but it also has some of the same features, such as the ability to contribute to the account after the end of the tax year.
Roth IRA Features
You can contribute a portion of your earned income into a tax-advantaged Roth IRA. Contributions for the 2010 tax year were limited to the lesser of 100 percent of your income or $5,000, or $6,000 if you were at least 50 years of age by the end of the tax year. You cannot take a tax deduction for contributions to your Roth IRA. The funds in your Roth IRA always belong to you, and you can withdraw them at any time for any reason. You can withdraw funds equal to the amount of your total contributions without incurring a tax liability, since you have already paid taxes on these funds. Earnings that remain in your Roth IRA for at least five years can be withdrawn tax free once you reach age 59 1/2.
Eligibility for a Roth IRA
Anyone who has earned income is eligible to have a Roth IRA, regardless of age. A newborn who earns money from a promotional photo shoot can have a Roth IRA. A retiree can have a Roth IRA. As long as you have earned income during the tax year, you can continue to contribute to your Roth IRA. There is no mandatory age at which you must begin taking withdrawals from your Roth IRA.
You can open a Roth IRA at any time, and you can make contributions to your Roth IRA at any time during the tax year. You can make contributions to your previous year's Roth IRA until the original due date for your federal income tax return. This is typically April 15, although the date may be extended slightly if April 15 falls on a weekend or holiday. You may not make contributions to your Roth IRA after the original due date for your federal income tax return - even if you requested a filing extension.
Contributions After Filing
You can make contributions to your previous year's Roth IRA until the due date for your federal tax return, regardless of when you actually file your income tax return. You do not report your contributions to your Roth IRA on your federal income tax return, so if you file your federal income tax return in February you can still make a contribution to your previous year's Roth IRA until April 15. Since you do not report contributions to a Roth IRA on your original federal income tax return, there is no need to file an amended return.
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