What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. Itis a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened.
Roth IRA tax advantages and rules compared to a traditional IRA:
• Contributions are not deductible. Active participation in an employer plan is irrelevant.
• If certain requirements are satisfied for qualified distributions, distributions are tax free.
• Can withdraw contributions any time for any reason without owing taxes or penalties.
• Contributions can be made after the participant reaches age 70½.
• The required minimum distribution (RMD) rules do not apply. Distributions are not required until death of the participant.
• Contributions are not allowed when modified adjusted gross income (MAGI) is above certain limits.
• Neither a SEP IRA nor a SIMPLE IRA can be set up as a Roth IRA.
Who Can Contribute to a Roth IRA?
Generally, you can contribute to a Roth IRA if you have taxable compensation and income less than the top of the phaseout range for your filing status – ask your Accountant for this information.
Compensation. Compensation includes wages, salaries,tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments.
Contributions. Total contributions are combined with traditional IRA contributions to determine limits. For example, a $1,000 contribution to a traditional IRA will reduce total contributions allowable to a Roth IRA by $1,000. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.If your modified AGI is within the phaseout amounts,your contribution limit is gradually reduced.
When Can You Make Contributions?
You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). This means that most people can make contributions for 2019 by April 15, 2020.
If you have any other questions pertaining to your taxes or accounting – please make sure to call the Sarasota CPAs at Sterling Tax & Accounting !