What About Roth IRAs? Are They Better For Me?

Regardless of your age, you may be able to establish and make nondeductible contributions to a retirement plan called a Roth IRA.

Contributions not reported. You do not report Roth IRA contributions on your return.


What Is a Roth IRA?

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA. It can be either an account or an annuity. Individual retirement accounts and annuities are described in Publication 590.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. Neither a SEP-IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions are tax free. Contributions can be made to your Roth IRA after you reach age 70 1/2 and you can leave amounts in your Roth IRA as long as you live.

Traditional IRA. A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA.


When Can a Roth IRA Be Set Up?

You can set up a Roth IRA at any time. However, the time for making contributions for any year is limited.


Can I Contribute to a Roth IRA?

Generally, you can contribute to a Roth IRA if you have taxable compensation and your modified AGI is less than:

$160,000 for married filing jointly, or qualifying widow(er),

$10,000 for married filing separately and you lived with your spouse at any time during the year, and

$110,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year.

You may be eligible to claim a credit for contributions to your Roth IRA.


Is there an age limit for contributions?

Contributions can be made to your Roth IRA regardless of your age.


"SHOULD I convert my IRA to a Roth IRA?"

This is primarily a financial planning decision, rather than a tax planning choice. Obviously, you are electing to pay *now* a tax liability which you otherwise would have been able to defer to a future year, perhaps when your rates might be lower. The taxes you pay today must come from sources other than the converted IRA, which means you will lose the earning power of those funds as well. Finally, at a time when tax reform is the mantra of Congress, who is to say that the "tax free" aspect of Roth IRA withdrawals will be allowed to continue indefinitely? We wouldn't venture a guess what tax laws will be like two years from now, let alone 10 or 20 years. This is a decision you really should discuss one-on-one with a local financial planner or tax professional. We do not provide advice on this topic in TaxLogic.

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