A Roth IRA is a tax-advantaged retirement account that allows you to build your nest egg using after-tax dollars. The Roth IRA was introduced in 1997 as an alternative to the traditional individual retirement account. The Internal Revenue Service places limitations on who can contribute to a Roth IRA, the amounts they may contribute, and when contributions can be made.
Who Is Eligible
Your ability to make contributions to a Roth IRA is based on your adjusted gross income. For 2011, the IRS permitted single filers, individuals claiming head of household status, and spouses filing separately to contribute if their adjusted gross income was less than $122,000. Married couples with an adjusted gross income of less than $179,000 were also eligible to make contributions. If your filing status is married filing separately but you lived with your spouse at some point during the year, your adjusted gross income must be less than $10,000 to be eligible to make contributions.
The IRS increases Roth IRA contribution limits periodically. For 2011, the maximum allowed contribution was $5,000. People 50 or older could contribute up to $6,000. The amount of your individual contribution is also based on your adjusted gross income. For example, if in 2011 you were a single filer with an adjusted gross income of less than $107,000, you qualified for the full contribution. If your adjusted gross income was between $107,000 and $122,000, you could contribute a reduced amount. For married couples, the maximum contribution was reduced if income exceeded $169,000. Contributions that exceed the allowed limit are subject to a 6 percent excise tax.
Deadline for Contributions
You can make contributions to a Roth IRA beginning Jan. 1 of any tax year and continuing until the tax filing deadline. Typically, the deadline is April 15th. Because of the Emancipation Day Holiday, the deadline was April 18 in 2011 and April 17 in 2013. If you file for a tax extension, you still must meet the April filing deadline for making Roth IRA contributions.
Unlike with a traditional IRA, you are not required to begin taking minimum distributions from a Roth IRA upon reaching age 70 1/2. This means you can continue to contribute to your Roth IRA regardless of age, as long as you receive some form of taxable income during the tax year. Although contributions to a traditional IRA might be tax-deductible, contributions to a Roth IRA are not.
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