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Roth IRA Qualifications

Updated on July 1, 2009

Roth IRA Qualifications – Are You In?

There is no better time to open a retirement plan than today. It's very simple even if you don't know how to open a Roth IRA. This is because the earlier you contribute in a retirement savings plan the more returns you can expect when you reach your retirement age. If you consider opening a Roth retirement plan, it is essential that you gain knowledge of the Roth IRA qualifications and see if you can receive the same benefits other retirees obtained upon their retirement. 

Like any other opportunity, there are specific limitations that you need to look closely at if you want to benefit from a Roth IRA. This retirement savings option was specifically developed with middle-class American taxpayers in mind. Basically, you should anticipate contribution limitations and income restrictions, though the age limitation may not be the same as what you’ve expected.

What are the Roth IRA qualifications?

Roth IRA qualifications are prepared by the Internal Revenue Service to inhibit those who have towering income to open this retirement plan. Regrettably, if your filing status is single but you have an AGI or adjusted gross income of $110,000 or higher, or if your filing status is married, you’re filing your taxes jointly, and your adjusted gross income is $160,000 or more, you are out – meaning you are not qualified to make contributions to a Roth IRA. Another rule that applies to compensation upon opening a Roth retirement account is that you can’t contribute more than what you earn yearly.

Roth IRA Investment Choices

If you are thinking what kinds of investments you can put your IRA funds into, you’ll be glad to know that the Taxpayer Relief Act of 1997 otherwise known as Public Law 105-34 established many options where you can let your contributed funds grow. These investment choices include mutual funds, common stocks, securities, notes, derivatives, certificates of deposit and real estate (make sure you learn the differences between a roth vs traditional IRA). Though, you should remember that like all other types of IRAs, there are particular eligibility and definite requirements in filing status under the Internal Revenue Service.

Roth IRAs are generally appreciated because of its distinctive tax structure. Depending on whom you’ve transacted your Roth IRA with; you can manage it in ingenious ways to include having a self directed Roth IRA, wherein you can even house your funds in investments within nonconventional assets. Moreover, you can still make contributions to your Roth IRA whatever your age is.

Advantage of a Roth IRA

One advantage of a Roth IRA is its treatment on the contributions you make. All the direct contributions to you retirement plan may be distributed or withdrawn without tax anytime after you reach 59 ½ years of age. If there are funds in your Roth IRA because of a rollover from a traditional IRA, you will have the opportunity to carry out withdrawals up to the total amount of the converted funds without penalty, provided your account already passed the seasoning period of five years. If you want to purchase a new home, you may withdraw up to $10,000 of your account’s earnings tax free if it is your first time to buy a principal residence.

There are other wonderful benefits that you can get hold of when you open a Roth IRA account but you must first know all of the Roth IRA rules. You may want this retirement plan badly, but it’s vital that you find all the relevant information about Roth IRA qualifications first, so you’ll not end up getting disappointed.

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