Roth IRA

What is a Roth IRA?

A Roth IRA is an individual retirement account that is established in much the same way as a Traditional IRA. However, unlike a Traditional IRA, you cannot deduct contributions to a Roth. If you satisfy the requirements, qualified distributions are tax-free. Contributions can be made to your Roth IRA even after you attain age 70½ and you are never required to take amounts out as long as you live.
 
Who is eligible?
 
Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is less than:

• $160,000 for married individuals filing jointly,
• $110,000 for single or head of household, and
• $10,000 for individuals who are married but filing separate returns

What is Compensation?
 
Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income and taxable alimony.
 
How much can I contribute?
 
Generally for 2003 you can contribute the lesser of $3,000 or 100% of your taxable compensation. If you have or will attain age 50 before year end, you can contribute and additional $500 as a catch-up contribution. However, your maximum contribution will be limited if your MAGI exceeds $95,000 if you are single, $150,000 if you are married filing jointly. Your accountant should be able to tell you your reduced Roth limit or you can complete the worksheet provided in IRS Publication 590.
 
The traditional IRA may be better for those who expect their tax rate to be lower when withdrawals are taken while those who choose Roth IRAs might expect their tax rates during retirement to remain the same or higher as their current tax rate.