Are Roth IRAs tax deductible?

Named after Senate Finance Committee Chairman William V. Roth Jr., R-Del., the Roth IRA is a new version of non tax deductible IRA. You don't get the tax deduction with a Roth IRA when you contribute the money, but after a five (5) year holding period you can withdraw it tax free upon reaching age 59˝, or in case of disability, death or first-time home purchase. This is a major tax savings tool.

You can make non tax deductible annual contributions of up to $4,000 ($5,000 if age 50 or over) to a Roth IRA. You can continue to make non tax deductible contributions to a Roth IRA after age 70˝ and there are no minimum distribution requirements.

Who qualifies? The Roth IRA phases out for singles with Modified Adjusted Gross Income of between $95,000 and $110,000, and couples with Modified Adjusted Gross Income of between $150,000 and $160,000. Roth IRAs could make contributions to some employer plans less attractive because amounts contributed to and earned in employer plans are only tax deferred, while amounts in the Roth IRA are tax free.

There are several options to consider with a Roth IRA. One concerns converting or "rolling over" your existing IRA into a Roth IRA account. Be prepared to pay income tax when you convert it, but lawmakers waived the usual 10 percent penalty tax for early withdrawals from an IRA. A separate Modified Adjusted Gross Income limit of $100,000 applies to people who roll over their regular IRA to a Roth IRA.

Roth IRA Distributions

Distributions from a Roth IRA are qualified and thus tax free if they are made after the five (5) year holding period and for any of the following reasons:

you are 59˝ or older;
your are disabled;
you use the distribution to pay for up to $10,000 of qualifying first time home buyer expenses; or
your are the beneficiary receiving distributions following the death of the Roth IRA account owner.

Regardless of the five (5) year tax rule if Roth IRA distributions do not exceed contributions they are not taxable.

Related tax information about Roth IRAs
Tax Directory Topics:  
IRAs
SEP IRAs

SIMPLE IRAs
Keogh Plans

Are IRA rollovers taxable on my tax return?

Adjustments to Income
IRS publications about Roth IRAs:
For additional information, refer to Tax Topic 451, IRAs, or IRS Publication 590, Individual Retirement Arrangements (IRAs). Also see IRS Publication 17, Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader. 
IRS publications can also be ordered by calling 1-800-829-3676.
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