Roth IRA Frequently Asked Questions

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.

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