Hefty Rules for IRAs

Roth IRA is quite new when compared to other IRA such as education IRA, Simple IRA,and Traditional IRA. Roth IRA was established due to legislation called Taxpayer’s Relief Act; the principal sponsor of this law is Senator William Roth of Delaware. Consequently, the retirement account was named after him.

Like the other IRAs, there is a thing called Roth IRA rules which includes eligibility,contributions and withdrawals rules.

Individuals Qualify for this

Despite the reality that Roth IRA is the best thing that hit retirement plans, only a certain number of individuals qualify for this. First, you must have a receivable compensation such as wage,salary,income, alimony and so on. Furthermore, modified adjusted gross income (MAGI) must fit in the required limit by the IRS. For single filers, MAGI should not exceed $114, 000.

Married couples should have a MAGI of $ 166,000 and below. $100,000 and below is required for those who are married but have a different tax return. In 2010, converting your retirement plan to Roth IRA was allowed to all plan holders despite their income limits. This provided the chance for unqualified individuals to finally get a Roth IRA.

Contributions for 2016 is similar to the ones in 2015. The contribution limit is still $ 5,000. A catch up limit of $ 1,000 for those who are aged 50 and above. Contribution limits usually increase by increments of $ 500 depending mainly on the inflation rate.

The IRA withdrawal rules on Roth accounts

IRA withdrawal rules on Roth accounts states that qualified withdrawals are not subject to penalties. In general, withdrawals should be done when an individual reaches 59 1/2 Nevertheless, it is best to remember that one of the characteristics of Roth IRA is that principal contributions can be withdrawn anytime without penalties.

Likewise, rollovers can also be withdrawn after the seasoning period of 5 years. Penalties are waived on a number of circumstances such as disability, the death of the Roth IRA holder, medical expenses, higher education expenses, and first home purchase.

As a Roth IRA holder, it is best to familiarize yourself with the latest updates on rules and regulations pertaining to your account because fees and penalties ca be hefty.