What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened.
Roth IRA tax advantages and rules compared to a traditional IRA:
- Contributions are not deductible. Being covered by an employer retirement plan is irrelevant.
- If certain requirements are satisfied for qualified distributions, distributions are tax free.
- Can withdraw contributions any time for any reason without owing taxes or penalties.
- The required minimum distribution (RMD) rules do not apply. Distributions are not required until death of the participant.
- Contributions are not allowed when modified adjusted gross income (MAGI) is above certain limits.
- Neither a SEP IRA nor a SIMPLE IRA can be set up as a Roth IRA.
Who Can Contribute to a Roth IRA?
Generally, you can contribute to a Roth IRA if you have taxable compensation and income less than the top of the phaseout range for your filing status, see Roth IRA Phaseouts chart, below.