Understanding Roth IRA Rules and Regulations

by GuestPoster on August 2, 2011

If you want to have a Roth IRA account, you should be able to know Roth IRA rules so you can open and avail of your funds without hassle when you need it. IRS has created simple rules that are fair and these rules and regulations are basically divided into four different factors such taxation, age, earned income and income limits.

Taxation:
When it comes to taxation, Roth IRA rules says that you must fund your contributions with an after-tax income. Keep in mind that Roth Ira is not tax deductible but withdrawal and future growth is tax-free. That means if you put money on your Roth IRA account, you will never have to pay income tax or capital gains tax on any investing fund.

Earned income:
To be able to contribute to Roth IRA, IRS says that you need to have an earned income in the taxable year of your contribution and that amount should not be more than your income for that year. If your major source of income is your business or your current job, this should not be an issue for you. But if you are retired or living off of a social security or pension, you can only give funds coming from your qualified earned income. According to Roth IRA rules, you cannot contribute social security check to your Roth.

Age requirement:
There are no strict regulations to age limit because there is no minimum or maximum age to open an account. The only requirement is that the hold should fund his or her Roth IRA account from earned income.
Income limits

To open an Roth IRA account, the MAGI (Modified Adjusted Gross Income maximum) limits should be 169,000 for married people, 10,000 for married people filing separately but living in with your partner during the tax year and 116,000 for single people, head of the house, or married filing separately but does not live with partner during the tax year.

There are also certain rules for Roth IRA early withdrawal. An account holder should be at least 59 years old to be able to withdraw and should have the account for 5 years. Withdrawals can also be made when the account holder has been disabled, for home purchase or in case of death. Other exemptions for Roth IRA early withdrawal are IRS bill payments, medical emergencies and insurance premiums for medical expenses.

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