Roth IRAs
Roth IRAs allow taxpayers to set up an IRA using nondeductible contributions. Although there is no immediate tax savings from contributing to a Roth IRA, the long-term advantages can be significant. Withdrawals from a Roth IRA account, including all the buildup in value over the years, are tax-free as long as certain conditions are met: (1) the withdrawals are made five years or more after the account was opened, and (2) the withdrawals occur after you attain age 59-1/2 or have become disabled.
The contribution limits for traditional and Roth IRAs are combined. In other words, you can contribute to more than one, but the total amount contributed cannot exceed the annual contribution amount. For 2013 and 2014, the maximum annual contribution is $5,500 ($6,500 if you are age 50 or older). However, the ability to make Roth contributions is limited if your adjusted gross income exceeds certain thresholds. The income limitations are the same as for traditional IRAs.
Amount of Roth IRA Contributions That You Can Make for 2013. This table shows whether your contribution to a Roth IRA for 2013 is affected by the amount of your modified AGI as computed for Roth IRA purpose.
If your filing status is... |
And your modified AGI is... |
Then you can contribute... |
married filing jointly or qualifying widow(er) |
less than $178,000
|
up to the limit
|
$178,000 but less than $188,000
|
a reduced amount
|
$188,000 or more
|
zero
|
married filing separately and you lived with your spouse at any time during the year |
less than $10,000
|
a reduced amount
|
$10,000 or more
|
zero
|
single, head of household, or married filing separately and you did not live with your spouse at any time during the year |
less than $112,000
|
up to the limit
|
more than $112,000 but less than $127,000
|
a reduced amount
|
$127,000 or more
|
zero
|
How to determine amount of your reduced Roth IRA contribution. If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.
- Start with your modified AGI.
- Subtract from the amount in (1):
-
$178,000 if filing a joint return or qualifying widow(er),
-
$-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
-
$112,000 for all other individuals.
- Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).
- Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
- Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.
See Publication 590, Individual Retirement Accounts (IRAs), for a worksheet to figure your reduced contribution.
Since contributions to Roth IRAs are not deductible, they are not reported on Form 1040 or 1040A.
Roth IRA Conversions
Beginning in 2010, you can convert a "regular" IRA to a Roth IRA, regardless of adjusted gross income. The catch is that you must pay current income tax on the entire converted amount. The converted amount must remain in the account for five years; if it is withdrawn prematurely a 10 percent penalty will apply and any tax due on the conversion that has not already been paid will become due in the year of the withdrawal.
If you rolled over a traditional IRA into a Roth IRA in 2010 and elected to split the tax due as a result of the conversion between 2011 and 2012, remember, you had to report one-half of the tax on your 2012 tax return.
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