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.
- 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|
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.