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Roth IRA Rules

Updated on June 17, 2011

Are You Eligible to Open a Roth IRA?

The Roth IRA officially became an individual retirement account through the Taxpayer Relief Act of 1997. Its chief legislative sponsor in the Congress is the late Senator from Delaware, William Roth. This is also where its name was derived from. Since the 2nd of January, 1998, the Roth account has been available to all investors. The Roth IRA rules and provisions were soon amended by the Internal Revenue Service Restructuring and Reform Act of 1998, which was signed by the president on the 22nd of July 1998. All Roth arrangements and plans were again amended and restructured in 2001.

The rules of opening a Roth IRA delineate the requirements you should meet, so you will become eligible to make contributions. You can save and use your Roth IRA for your retirement while letting your contributed funds earn tax-free interest. The tax benefits incorporated to your Roth account can be recognized when you make withdrawals or distributions under certain stipulations. The earnings that your investment will obtain such as capital gains, interest and dividends are all considered as tax-free income. Your contributions on the other hand, do not have tax benefits since all the added funds to your Roth IRA are carried out with after tax contributions.

Learning the Roth IRA Rules

Learning about the Roth IRA rules allow you to put your funds in broad range of investment vehicles. These include bonds, stocks, certificate of deposits, securities, derivatives, notes, mutual funds and real estate market. As of year 2009, contributions are limited up to $5,000 yearly, which may also be constrained based on your filing status and income. But if you are 50 years of age or older, you will have the opportunity to take advantage of catch up contributions that authorize you to contribute an additional amount of $1,000 per year.

Know the Roth IRA basics: You can open as many IRA accounts as you want, since there is no rule that controls or limits the number of IRA plans an individual can acquire, though you must keep in mind that the set contribution limitation applies to all Roth IRA accounts. The yearly contributions to your Roth IRA are made between the 1st of January of a present year and the 15th of April the following year. The extra three months and a half grant you the privilege to reach the maximum allowable contribution each year. But when you provide a contribution to your IRA custodian between January and April of the following year, do not forget to specify the year of the contribution you prefer, so the accurate information will be sent to the Internal Revenue Service.

Understanding the Roth IRA Rules

If you anticipate that the tax rates will continuously increase, a Roth account allows you to fix your tax rate based on the current tax you are paying. If you want to convert you Traditional IRA to a Roth IRA, you must understand that taxpayers with less than $100,000 MAGI during the year of conversion and do not have filing status of married filing separately are the only ones permitted to convert their accounts.

Try to learn and get as much Roth IRA advice as you can. The Roth IRA rules may appear complicated at first due to the terminologies used in its regulations. Though, if you study them thoroughly you will gain knowledge of its full benefits for your retirement years.


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