Category Archives: Roth IRA

No-Fee Roth IRA Accounts

This is another article in our Roth-IRA series. In this article we will go over a list of the best No-Fees Roth IRA account and the criteria to select your Roth IRA trading account. Fees can take a significant portion of the returns you earn on your investments. There are various types of fees a custodian can impose on you, some common fee types are:

Annual Account maintenance fees

Some Roth IRA custodians charge you custodial fees or account maintenance fees which could range from $50-$200 per year. However many financial institutions and low cost brokerage houses have now started offering Roth IRA accounts which do not have annual fees or minimum balance requirements.

Trading fees

If your Roth IRA account provider provides the ability to ability to trade in individual stocks and ETF, they will charge you a fee on each transaction you perform. The fee will vary from one financial institution to another and will depend on whether you are placing the order online or placing a broker assisted order. These fees can range from $5-$50 per transaction.

Management fees on Mutual accounts

Mutual funds cover their expenses by taking a slice from your investment in the fund as management fees. The fees that is been charged can be seen in the expense ratio published by the mutual fund. Also many funds charge a fee when you invest some money in the fund, upfront (known as front-loading) and when you withdraw money from the fund (known as back-loading). However there are some funds which will not charge you such fees either upfront or on withdrawal. Such funds care called No-load funds. When selecting a Roth IRA account, revive how many no-load mutual funds are available for investment.

You should ideally go for a Roth IRA account which does not require a minimum balance and has no annual maintenance fees. However there are more considerations to select a Roth IRA account provider:

Additional service to consider when choosing a Roth IRA provider

When you open a Roth IRA account it is likely that you will stick with the account provider for many years, so you must take some time to perform the initial research.

Research and investment tools: If you are just starting out with your first investment account, the amount of financial data available will intimidate you but you will soon get comfortable with all the key data to look at. Access to good quality research and tools in your retirement savings account will help you make better investment decisions.
Real time quotes: Real time quotes will offer you the ability to know the current prices of your investments and help you make better decisions about your transaction
Range of assets: Not all financial institutions allow you to trade all instruments in the Roth IRA. Also the range of mutual funds and ETF permitted may be limited at certain financial institutions. Please check with customer support about the asset classes and the type of
Overall services provided by the financial institutions: It is likely that the company you select as your Roth IRA account will also be your choice for other types of retirement and trading accounts. Plus it is easier to manage accounts under one login and not having to deal with multiple systems. At some late point you may decide to convert one account type, for example Traditional IRA to Roth IRA, having both accounts with the same custodian will make the conversion process simpler.
Ease of fund transfer: If you can maintain your checking account with the same financial institution, you will be able to transfer funds quickly between your checking account and Roth IRA account when needed.
Customer support: Good customer service representative are informed people who can help you setup your account, answer your questions, move your account or point you in the right direction.

Some good no-fees and low fees Roth IRA account providers are

ETrade
Fidelity
Vanguard
Charles Schwab
Scottrade
Option Express
TDAmeritrade
ShareBuilder

If you have any question please let us know on the FAQ page for Roth IRA.

Roth IRA

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Note: (Updated on 8th January, 2013)I have tried to make this the most comprehensive single article on Roth IRA. After reading this article you will know what is a Roth IRA? Is Roth IRA right for you? Where to open an account? How much you can contribute and how does it compare with other retirement saving plans. If you have any questions, please leave in the comments. Our team of active reader will help you out.

Roth IRA Basics

Roth IRA is type of retirement plan (IRA – Individual Retirement Arrangement) which an individual can use to save for retirement. Roth IRA differs in many ways from other retirement plan like Traditional IRA and 401K.

Roth vs. Traditional IRA

Unlike Traditional IRA, you do not get tax deduction on contributions you make to a Roth IRA account. However, all (qualified) withdrawals are tax free. This includes any earnings you have on your contributions to the account.

Roth IRA Rules

Distributions from Roth IRA

You can start taking distribution from your Roth IRA account at the age of 59 1/2. Your account must be open and the first contribution must have been five years ago. There are also qualifying distribution that can be made before the age of 59 ½ as long as the plan has been open for at least five years.

Distribution for qualified first time home purchase or to build a first home.
Distributions if you become disabled (as per the IRS code).
Distributions made to your beneficiary or to your estate, after you die.

Eligibility Criteria for contributing to Roth IRA

There are no age restrictions to invest in a Roth IRA account, however there income and contribution limits which apply.

Roth IRA contribution limits

Since Roth IRA offers you an opportunity to save for retirement and without paying taxes on your earnings, there is a limit to how much one can contribute to it. Also there is a maximum income limit for one to be eligible for Roth IRA. Each year Roth IRA contribution limits are reviewed for inflation

Roth IRA contribution limits 2013

For 2013, you can contribute a maximum of $5,500 (up to $6,500 if you are age 50 or older). The contribution limits have been raised by $500 from 2012. 2013 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year.

Roth IRA contribution limits 2012

The Roth IRA contribution limits were unchanged between 2008 and 2012. For 2012, you can contribute a maximum of $5,000 (up to $6,000 if you are age 50 or older). 2012 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year.

Roth IRA contribution limits 2011

The Roth IRA contribution limits were unchanged between 2008 and 2012. For 2011, you can contribute a maximum of $5,000 (up to $6,000 if you are age 50 or older). 2012 Roth IRA contribution limits also state that the contribution cannot be higher than your earned income in the year. Income limit for Roth IRA

In order to contribute to a Roth IRA account, your modified adjusted gross income (MAGI) must be below a certain level. The income limits and the contribution limits are reviewed every year for inflation.

For more details see our article on Roth IRA Income and contribution limits.

Opening a Roth IRA

Opening your Roth IRA account is easy. Nearly all traditional brokers and online discount brokers offer a Roth IRA account. But not all accounts are made equal, some have minimum balance requirements and some charge a fee to maintain your account.

Vanguard, Fidelity and T.Rowe Price are good place to start looking for a no fee or a low fee account to get started.

Roth IRA Contribution deadline

The contribution deadline for Roth IRA coincides with the tax filing deadline. That is great because you can make contribution for the previous year in the current year. 2012 Roth IRA contribution deadline is April 15, 2013. The 2013 Roth IRA contribution deadline will be April 15, 2014.

You can contribute to both a Traditional and a Roth IRS in any given year, but the contributions limits apply to both as an aggregate. This is also true if you have multiple Roth IRA accounts.

Please refer to the Wikipedia entry to learn more about the history of Roth IRA.

Additional Articles on Roth IRA

Roth IRA Income Limits and Contribution Limits
Roth IRA Conversion
Frequently Asked Questions about Roth IRA
Where to open no-fees Roth IRA accounts?

2013 Roth IRA Income Limits and Contribution Limits

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Roth IRA is a retirement plan that one can open and make after-tax contributions. Qualified distributions from the plan are tax free and can be a good source of tax-free income in retirement. You can start making tax-free withdrawals at the age of 59 1/2 (and unlike a traditional IRA which has forced withdrawal at the age of 70 1/2, Roth IRA does not require you to make a withdrawal at any age, you can pass on the balance in the account as inheritance without tax). Roth IRA is one of the best retirement investing vehicle avaible and you should make use of it if you are eligible for it.

There are three main criteria that determine if you are eligible for the plan.

Income limits.
Age.
Your tax filing status.

Income Limits for IRA

In order to contribute to an IRA in a particular year, you must have income in that year. Your modified adjusted gross income (MAGI) must be less than a certain threshold in that year.

For married couples filing jointly: You can contribute the full amount allowed if you make below $178,000. The allowed contributions phase out linearly between $178,000 to $188,000. These limits are in effect for 2013, the phase-out range has been pushed out by $5000.

For single: You can contribute the full amount allowed if you make below $112,000. The allowed contributions phase out linearly between $112,000 to $127,000. These limits are in effect for 2013, the phase-out range has been pushed out by $2000.

For Married filing separately: The phase out range remains at $0-$10,000 for 2013, if you are covered by a retirement account at you r work.

Contribution Limits for Roth IRA

For 2013, you can contribute $5,500 ( up from $5,000 in 2012) if you are below 50 years of age (age 49 and below) and $6,500 (up from $6,000 in 2012) if you are age 50 and above. The contribution limits are indexed to inflation and are reviewed every year. The additional contribution allowed to individuals over age 50 is called ‘catch-up’ contribution, and is currently $1,000 more than if you are below age 50.

Historical Roth IRA Contribution Limits

	Age 49 and Below	Age 50 and Above
1998–2001	$2,000	$2,000
2002–2004	$3,000	$3,500
2005	$4,000	$4,500
2006–2007	$4,000	$5,000
2008–2012	$5,000	$6,000
2013	$5,500	$6,500

Remember you can make contribution to your 2012 Roth IRA account until April 15th 2013 (the tax filing deadline). For 2013, the deadline to make a contribution to your Roth IRA account will also coincide with the deadline to file your taxes. Since contributions to a Roth IRA are made after tax, they are not tax deductible, the benefit is that qualified withdrawals from this account are not subject to income tax.

Make use of the additional amount allowed for 2013. If you are ineligible for a Roth IRA account, consider a traditional IRA account.

photo by: Philip Taylor PT

Roth IRA Frequently Asked Questions

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This is a collection of all the questions we get frequently asked about Roth IRA. If you have any question you would like us to address, please use the contact form and send us your question.

Roth IRA Account Opening

What are the fees to open a Roth IRA account?

Many financial institutions offer a Roth IRA account. Due to the competition, there are no fees to open an account. However, some companies may charge a maintenance fee (which can be waived if you maintain a minimum balance) or other fees. Please read the documents you receive when opening your account or ask the company representative where you are planning to open an account.

Can I open multiple Roth IRA account?

Yes, you can have multiple Roth IRA accounts; however the contributions limits apply to them collectively. You may want to have multiple accounts if you want to invest your assets in a way which is not possible at any of the individual financial institutions holding your accounts. Holding multiple accounts can be difficult to manage and may result in fees from multiple financial institution.

I am not yet 18, can I open a Roth IRA?

Yes, as long as you have earned income in the year, you can make contribution to a Roth IRA. There are no age restrictions.

Can I open a Roth IRA, if I already have a Traditional IRA?

Yes, having a Traditional IRA account does not have an impact on you opening if you meet the other conditions required to open a Roth IRA account.

When is it advantageous to open a Roth IRA over a Traditional IRA or 401k plan?

Each of these plans has their pros and cons. One advantage Roth IRA can offer over other retirement savings plans is to people who are currently in lower tax brackets than where they expect to be in retirement. For Roth IRA, you make you contributions on a post-tax basis (i.e. you will have to pay taxes on your income first, and then make a contribution to Roth IRA) and withdrawals are tax free. So by paying taxes now, you can avoid paying higher taxes in the future.

Roth IRA Contributions

How much can I contribute to a Roth IRA?

You age, income and tax filing status (single, married filing jointly or married filing separately) will determine how much you can contribute to a Roth IRA account. In 2012, you can contribute up to $5,000, if you are below age 50; and $6,000 if you are above age 50. The limits are $5,500 and $6,500 respectively for 2013. See Roth IRA contribution limits

By when can you make a contribution to Roth IRA account?

You can make a contribution to your Roth IRA account till the tax filing deadline for the next year. For 2012, its April 17th, 2013.

Roth IRA Conversion

What are the income limits to convert a Traditional IRA to a Roth IRA?

There are no income limits for Roth IRA Conversion. The amount you convert from your (pre-tax) Traditional IRA will get added to your income in the current year and you will have to pay taxes on them.

Roth IRA Taxes

Are dividends on the stocks I own in a Roth IRA taxable?

No, any returns you get on investment made from within your Roth IRA account are tax free, including dividends and capital gain on investments.

Roth IRA Withdrawal

Can I use money in my Roth IRA as a down payment for first time home purchase?

Yes, you can use the savings you have in your Roth IRA without any tax consequences as long as:

Your money has been in the account for more than five years (considered in the following order: contributions, conversion and earnings)
If you are a first-time homeowner (as per IRS, anyone who has not owned a home in the last two years at the time of making an acquisition is considered a first-time homeowner) and purchasing a primary residence
A lifetime maximum $10,000 can be withdrawn from Roth IRA towards your first home purchase.

Due to the complexities of the terms of withdrawal from a Roth IRA, please check with a tax consultant to be sure whether your withdrawal qualifies or not

When do I have to start taking withdrawals from a Roth IRA?

Never. Unlike Traditional IRA accounts where you have to start taking minimum withdrawals after you reach age 70 1/2 , Roth IRA allow you to keep money in the Roth IRA account and pass on to a beneficiary.

Roth IRA Conversion

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Converting to a Roth IRA is a very easy and simple process. This article is an overview of the Roth IRA conversion rules and process.

In order to make new contribution to a Roth IRA, income and contribution limits apply. However you can convert some or all of you balance in a Traditional IRA account to a Roth IRA, no Roth IRA conversion income limits apply.

Converting to a Roth IRA from a Traditional IRA is helpful if you expect you tax bracket to be higher in retirement from where it is currently. If you are earning above the income limits for Roth IRA contribution, you can use the conversion process as a backdoor entry to make contribution to Roth IRA and get tax-free income during retirement.

You can also convert other retirement accounts (like 401K and 403b) to Roth IRA. Typically this can only be done once you have left the employer who had sponsored the plan (check with you plan administrator).

When you opt for conversion from a pre-tax account such as Traditional IRA and 401K, you will have to pay taxes on the amount of dollars converted in the tax year during which the conversion takes place. You initial contribution to these pre-tax retirement accounts were tax free, so the IRS want a take a piece now.

Since the amount you convert gets added to your current year income, the amount of taxes you pay will depend on your income in the year the conversion takes place

The conversion makes sense if

You expect a higher tax bracket on withdrawal from your pre-tax accounts during your retirement than what you would pay as taxes for converting them now.
Your current year’s income is above the Roth IRA income limits for contribution and you expect that your tax bracket will be higher in retirement.
The amount you are converting from a pre-tax retirement account will not have any severe impact on your tax bracket or will not cause you to pay taxes on other income sources (for example if you are drawing social security, a conversion from traditional IRA will add to your income for the current year, which may push you in a higher tax bracket), the conversion can be considered.

Traditional IRA to Roth IRA conversion

If you are going with a new financial institution for the Roth IRA account, go for a trustee-to-trustee transfer. Your new trusty will provide you with all the account details you will have to provide to the one managing your Traditional IRA account.

If you are staying with the same financial institution, you request a conversion of the account to a Roth IRA. It should be as simple as a supervisor re-designating your account.

401k to Roth IRA conversion

Conversion from a 401k account can be tricky. Be sure to opt for a direct transfer of assets to the financial institution where you will be operating the Roth IRA account. If you opt to take a check in your name, your 401k administrator will hold back 20% for tax purposes. However you have to rollover the entire amount to a Roth IRA (including the 20%) in 60 days or else you will owe taxes on any amount that is not rolled over (if you are younger than 59 1/2 years, you will also owe 10% penalty on the money you withdraw).

Once you have completed the roll over, ensure your assets are invested as per your investment plan. If the same options are not available to you in the Roth IRA, you may have to select suitable alternatives. You are now equipped to convert your accounts to a Roth IRA.