Most people know that a Roth IRA can be a great investment vehicle to grow your money for retirement. Roth IRAs allow you to pay taxes on contributions to your account at your present income tax rate, and then withdraw funds and receive distributions tax-free when certain conditions have been met.
Unlike traditional IRAs and 401ks, Roth IRAs carry specific restrictions on who can invest in these types of funds. Investors must meet income requirements, abide by contribution limits, as well as meet additional obligations for investing.
Roth IRA eligibility depends on a number of factors that are subject to change as the years go on. The retirement specialists at ETrade can provide you with the most current Roth IRA requirements and contributions limits.
Roth IRA Eligibility: Brokerages
In order to invest in a Roth IRA, your account must be opened and kept at an approved financial institution. These can include savings & loan institutions, credit unions, brokerage firms, and banks. Each institution offers different options for investing in your Roth IRA, as well as different brokerage fees and commissions.
Choose a brokerage that offers the broadest selections of investments and asset classes for investments, that also offer the lowest fees. For many investors, opening and managing an account online is the best option, as the fees are lower and the selection of funds is usually larger.
Your brokerage can help you determine your Roth IRA eligibility, and inform you of any special considerations that apply to your circumstances.
Roth IRA Eligibility: Income Requirements
Income requirements for investing in a Roth IRA are based on your adjusted gross income (AGI). Only investors who fall within these limits are allowed to contribute to this type of individual retirement account.
Income requirements are adjusted periodically for inflation, but as of 2011 the IRS has set income limits at $179,000 for married couples who file jointly, and $122,000 for individuals who file as single, head of household, or married filing separately.
Keep in mind that all funds must come from gainful employment or another taxable source of income. Certain investment income and other annuity payments may not qualify, so always check with an accountant to assess your Roth IRA eligibility.
Roth IRA Eligibility: Contribution Limits
The IRS places limits on how much you can contribute to your Roth IRA, and these amounts vary by age. It is important to note that the IRS does not allow for you to contribute additional funds to your account if you did not maximize your contributions in the previous year.
Currently, if you are under the age of 50 years old, you are allowed to contribute $5,000 per year to your Roth IRA. The IRS offers a $1,000 per year “catch up” contribution per year for investors over the age of 50, meaning if you are 50 or over you can contribute $6,000 per year to your retirement fund.
Your broker can provide you with up-to-the-minute details and requirements for contributing to a Roth IRA. You can find the current Roth IRA eligibility requirements, as well as access top financial professionals at online broker ETrade, or leading discount broker Zecco.