Some A-B-Cs of ROTH I-R-As


by David D. Holland



For those who are not as familiar with Individual Retirement Accounts, specifically the ROTH IRA, here is some important planning information. A ROTH IRA is a special kind of Retirement Account because taxes have already been paid on the money you contribute. Because of this, you can withdraw the money without paying additional taxes. Earnings, too, are free from tax as long as you follow certain rules. (Note: Earnings are not tax-free because the money put into the ROTH was after-tax money; they are tax-free due to favorable tax treatment under the Internal Revenue Code.)



Holland FinancialAs with anything that involves the government and the IRS, there are rules involved when it comes to the ROTH IRA. Here are a few for 2016:


1. If you are single, you can only contribute to a ROTH if you earn less than $132,000, or $194,000 if you are a married couple.


2. You can’t contribute more than $5,500 annually to the ROTH unless you are over age 50. For those 50+, you can contribute $6,500.


3. You can make a contribution any time from the 1st of January through the tax filing deadline. (Example for 2016: 01/01/16 through 04/17/17.)


4. To be eligible to contribute to a ROTH, you must have earned income (a salary, for example), but you cannot exceed the specified limits noted above.


5. A contribution to a ROTH IRA cannot exceed your earned income. In other words, if you earned $4,000 over the year, you can contribute up to $4,000, not the maximum of $5,500.


There are other great things about a ROTH: You can contribute at any age. You don’t have to take mandatory distributions from a ROTH at age 70 1/2. You can contribute to a ROTH even if you participate in a 401(k) at work. Whether you have earned income or not, you can convert all or part of a Traditional IRA to a ROTH IRA. Of course, before you open an account, there are many other aspects to a ROTH that should be considered. To learn more, you can call my office for an appointment; I’d be happy to discuss IRAs and ROTH IRAs with you.





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