What Roth Hath, Traditional Hath Not
What Roth Hath, Traditional Hath Not
The Taxpayer Relief Act of 1997 introduced a new Individual
Retirement Account (IRA) called the Roth IRA. The primary
inducement to make contributions to the new Roth IRA is that
distributions are tax-free if certain conditions are met. One
drawback to the Roth IRA is that contributions to the account
are never deductible. The passage of the Economic Growth and Tax
Relief Reconciliation Act in 2001 provided for increased
contributions going forward.
For 2006, an individual may contribute up to $4,000 to a Roth
IRA (less any contribution made to a traditional IRA). This
amount will eventually be raised to $5,000 in 2008. In addition,
EGTRRA established a catch-up provision. Individuals who have
attained age 50 or over during the tax year may contribute an
additional $1,000.
Contributions to Roth IRAs are not deductible and must be in
cash when made. In addition, unlike regular IRAs, there is no
age restriction on making contributions. The AGI threshold for
contributing to a Roth IRA is $95,000 for single individuals and
$150,000 for married individuals filing a joint return. For
single filers, the allowed contribution is phased out for AGI
between $95,000 and $110,000. For married individuals, the
allowed contribution is reduced proportionately if AGI is
between $150,000 and $160,000. No Roth IRA contributions are
allowed if an individual is married and files separately.
The earnings attributable to contributions accumulate on a
tax-deferred basis and become tax free and penalty free upon
withdrawal providing the Roth IRA has been in effect for at
least five years and the taxpayer: * has attained the age 59