Roth IRAs

Roth Individual Retirement Accounts (IRAs) are a good choice if you’re seeking tax-free withdrawals in retirement, want to avoid required minimum distributions beginning at age 70 1/2, or feel you’ll be in the same or a higher tax bracket in retirement. Roth IRAs offer you an opportunity to create tax-free income during retirement.

Benefits

  • Tax-deferred growth until retirement and tax-free withdrawals while in retirement
  • The ability to withdraw your contributions without tax or penalty if you need the money
  • No Required Minimum Distributions (RMDs) at age 70 1/2

Things to consider

  • Your Modified Adjusted Gross Income (MAGI) determines your eligibility.
  • You’re not able to deduct your contributions on your taxes, as they’re made with after-tax savings.
  • Withdrawals of earnings before age 59 1/2 will be charged a 10% IRS early withdrawal penalty (some exceptions apply).

You can also convert pretax funds held in Traditional IRAs or employer-sponsored plans (401(k)s, 403(b)s, 457 plans, SEP IRAs, or SIMPLE IRAs) to a Roth IRA. Keep in mind you’ll have to include any converted amounts as income on your taxes. Learn more about converting to a Roth IRA.

Individuals with earned income or spouses with earned income are eligible to contribute to a Roth IRA as long as your MAGI meets the following limits:

  • Maximum Roth IRA contribution for 2013: Full contribution if MAGI is less than $112,000 (single) or $178,000 (joint). Partial contribution if MAGI is less than $127,000 (single) or $188,000 (joint).
  • Maximum Roth IRA contribution for 2014: Full contribution if MAGI is less than $114,000 (single) or $181,000 (joint). Partial contribution if MAGI is less than $129,000 (single) or $191,000 (joint).

Individuals can contribute up to $5,500 for 2013 and 2014, based on Roth IRA income limits. If you’re over age 50, you can make an additional catch-up contribution of $1,000 over the normal limit.

Need to know more? Our IRA eligibility calculator can also help determine how much you can contribute.

With a Roth IRA, you can withdraw your contributions at any time, free of tax or penalty. Earnings are income tax-free if you've held the account for five years or more and you’re age 59 1/2 or older. Earnings are also income-tax-free if made on account of disability/first home/death.  All require the five-year holding period.

However, if you make any withdrawals of earnings before age 59 1/2, you may be charged a 10% IRS early withdrawal fee. There are a few exceptions that allow you to avoid the 10% penalty:

  • Disability
  • Qualified first-time home purchase ($10,000 lifetime limit)
  • Qualified higher education expenses
  • Qualified military reservist
  • Medical expenses in excess of 10% of Adjusted Gross Income (AGI)
  • Health insurance premiums if unemployed for 12 consecutive weeks
  • Substantially equal payments made over life expectancy
  • Death

Need to know more? Take a look at some frequently asked questions about IRAs.

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Learn more about IRAs

If you’re not sure whether you want a Traditional or Roth IRA, we can help you compare. And for a general look at where you are with retirement, try out our Retirement Tools & Calculators.

What is Modified Adjusted Gross Income?

Your Modified Adjusted Gross Income (MAGI) is found by taking your Adjusted Gross Income (AGI) and adding back certain items, such as foreign income, student-loan deductions, or other items determined by the IRS. This amount is used to determine your deductibility for Traditional IRA or eligibility for Roth IRA contributions.