Opening a Roth IRA can be a smart move if you want to invest for retirement and save money on taxes later in life. However, there are strict rules when it comes to how much you can contribute to your Roth IRA.
Contributions to a Roth IRA are made with after-tax dollars, which means your money can grow tax-free. When you’re ready to take distributions from your Roth IRA in retirement (or after age 59 ½), you won’t pay income taxes on your distributions, either.
If you want to start contributing to a Roth IRA as part of your retirement strategy, keep in mind there are some limits. For example, if you’re under the age of 49 you can contribute a maximum of $7,000 for the 2024 tax season.
Interested in learning more about the specifics of the Roth IRA? Here’s everything you need to know.
Table of Contents
What Is a Roth IRA?
A Roth IRA is a type of individual retirement account (IRA) that allows you to save money for retirement on a tax-deferred basis. With a Roth IRA, contributions are made with post-tax dollars and qualified withdrawals are tax free.
This means that the amount you contribute will not be subject to taxes today and any withdrawn amount when you reach retirement age, including earnings, can be taken out tax free.
And in case you missed that last point, it’s worth repeating:
How Much Can You Contribute to a Roth IRA?
For the 2024 tax season, standard Roth IRA contribution limits increased from last year, with a $7,000 limit for individuals. Plan participants ages 50 and older have a contribution limit of $8,000, which is commonly referred to as the “catch-up contribution.”
You can also contribute to your IRA up until tax day of the following year.
| CONTRIBUTION YEAR | 49 AND UNDER | 50 AND OVER (CATCH UP) |
|---|---|---|
| 2024 | $7,000 | $8,000 |
| 2023 | $6,500 | $7,500 |
| 2022 | $6,000 | $7,000 |
| 2020 | $6,000 | $7,000 |
| 2019 | $6,000 | $7,000 |
| 2018 | $5,500 | $6,500 |
| 2017 | $5,500 | $6,500 |
| 2016 | $5,500 | $6,500 |
| 2015 | $5,500 | $6,500 |
| 2014 | $5,500 | $6,500 |
| 2013 | $5,500 | $6,500 |
| 2012 | $5,000 | $6,000 |
| 2011 | $5,000 | $6,000 |
| 2010 | $5,000 | $6,000 |
| 2009 | $5,000 | $6,000 |
What You Need to Know About Roth IRAs
Here’s the thing about opening a Roth IRA: not everyone can use this type of account. We’ve included a few important Roth IRA rules you need to know about below.
Fund Distributions
Roth IRA accounts come with a few unique benefits outside of future tax savings. For example, you don’t have to take Required Minimum Distributions (RMDs) out of a Roth IRA at any age, and you can leave your money in your account for as long as you live.
You can also continue making contributions to a Roth IRA after you reach age 70 ½ provided you earn a taxable income that’s below Roth IRA income limits.
Roth IRA Income Limits
Not everyone can contribute into a Roth IRA account due to income caps. There are income guidelines that must be followed — it’s even possible to have an income so high you can’t use a Roth IRA at all.
If your taxable earnings fall within certain income brackets, your Roth IRA contributions might be “phased out”. This means you can’t contribute the full amount toward your Roth account.
Here’s how Roth IRA income limits and phase-outs work, depending on your tax filing status.
Married Couples Filing Jointly:
- Couples with a modified adjusted gross income (MAGI) below $218,000 can contribute up to the full amount.
- Couples with a MAGI between $218,000 and $227,999 can contribute a reduced amount.
- Couples with a MAGI of $228,000 or more can’t contribute to a Roth IRA.
Married Couples Filing Separately:
- Couples with a MAGI below $10,000 can contribute a reduced amount.
- Couples with a MAGI of $10,000 or more can’t contribute to a Roth IRA.
Single Tax Filers:
- Single tax filers with a MAGI below $138,000 can contribute up to the full amount.
- Single tax filers with a MAGI between $138,000 and $152,999 can contribute a reduced amount.
- Single tax filers with a MAGI of $153,000 or more can’t contribute to a Roth IRA.
Retirement Account Conversions Allowed
If you have another type of retirement account, like a traditional IRA or even a workplace 401(k), it might be tempting to convert this account into a Roth IRA. This is known as a Roth IRA conversion which requires you to pay income taxes on your distributions now so you can avoid income taxes later on.
Although that might sound aggressive and unnecessary, there are many scenarios where a Roth IRA conversion can make sense. For example, let’s say you’re not earning a lot of money in a specific year and you want to convert to a Roth IRA while paying an extremely low tax rate. You could fork over the taxes now and avoid paying income taxes on distributions later in life when you’re taxed at a higher rate.
As mentioned earlier, Roth IRA accounts don’t require you to take a minimum distribution while you’re alive. Moving your money into a Roth IRA can make sense if you don’t want to be forced into required minimum distributions (RMDs) like you would with a traditional IRA or a 401(k) at age 72.
With a Roth IRA conversion, you’d create an opportunity where your money could grow and compound, untouched, for a much longer stretch of time.
IRA Recharacterization
A recharacterization takes place when you move money from a traditional IRA to a Roth IRA, or from a Roth IRA to a traditional IRA. More specifically, recharacterization changes how specific contributions are designated depending on the type of IRA.
For example, maybe you believed your income would be too high to contribute to a Roth IRA in a specific year but found your income was actually low enough to contribute the full amount. If you already contributed to a traditional IRA, a recharacterization could help you move your funds into a Roth IRA, after all.
Of course, the opposite is also true. You might’ve thought your income qualified you to contribute to a Roth IRA but at the end of the year, you found out you were wrong after already making Roth contributions. In that case, a recharacterization to a traditional IRA could make sense.
These moves can be complicated, and there might be significant tax consequences along the way. It’s best to consult with a financial advisor or tax specialist before changing the designation of your IRA contributions and face potential tax consequences.
Early Withdrawal Penalties
You can withdraw your Roth IRA contributions at any time without penalty. Also, you can withdraw contributions and earnings 59 ½ and older, if you’ve had the Roth IRA account for at least five years. This is considered a qualified disbursement that won’t incur early withdrawal penalties.
But there are downsides if you need to withdraw your earnings ahead of retirement age. If you choose to withdraw your Roth IRA earnings before age 59 ½, you’ll face a 10% penalty. Some exceptions apply, though.
For example, you can withdraw earnings from your Roth IRA account without paying a penalty if you’ve had the account for at least five years, and you qualify for one of these exemptions:
- You Used the Money for a First-Time Home Purchase,
- You’re Totally and Permanently Disabled, Or
- Your Heirs Received the Money After Your Death.
What’s the Difference on Roth IRAs vs Traditional IRAs?
The main difference between Roth IRAs and Traditional IRAs is their tax structure. Contributions to Traditional IRAs are made with pre-tax money and withdrawals are taxed at the individual’s current income tax rate, while contributions to Roth IRAs are made with after-tax money, but withdrawals are tax free.
Another key difference is that Roth IRA contributions can be withdrawn at any time without penalty, while Traditional IRA contributions may incur a 10% early withdrawal penalty before age 59 1/2. Additionally, there are differences in contribution limits and eligibility requirements for each type of IRA.
Key Differences Between a Traditional IRA vs a Roth IRA
| 50 AND OVER (CATCH UP) | ROTH IRA |
|---|---|
| Contributions Are Tax-Deductible | Contributions Are Not Tax-Deductible |
| Require Mandatory Distributions at Age 70 ½ | Do Not Require Mandatory Distributions at Age 70 ½ |
| Withdrawals Are Taxed as Ordinary Income | Withdrawals Are Generally Tax-Free |
| Contributions Must Stop When an Individual Reaches Age 70 ½ | No Such Requirement |
Where to Get Help Opening a Roth IRA Account
If you feel like a Roth IRA is the best retirement vehicle for goals, you can open a Roth IRA account with almost any brokerage account. But they don’t all offer the same selection of investments to choose from. Some brokerage firms also offer more help creating your portfolio, and some charge higher (or lower) fees.
That’s why we suggest thinking over the type of investor you are before you open a Roth IRA. Do you want help creating your portfolio? Or do you want to select individual stocks, bonds, mutual funds, and ETFs and create your own?
Always check for investing fees as you compare firms, and the types of investments each account offers. We did some basic research for you to come up with a list of the best brokerage firms to open a Roth IRA.
Bottom Line on Roth IRA Rules and Limits
Opening a Roth IRA is a great idea if you want to avoid taxes later in life, but you’ll want to start sooner rather than later if you hope to maximize this account’s potential. Remember that all of the money you contribute to a Roth IRA can grow tax-free over time.
Getting started now lets you leverage the power of compound interest to the hilt. Before opening a Roth IRA account, compare all of the top online brokerage firms to see which ones offer the investment options you prefer at fees you can live with.
Also consider which firms offer the type of help and support you need, including the option to have your portfolio chosen for you based on your income, your investment timeline, and your appetite for risk.
Roth IRA Rules FAQs
Here are some of the key rules for a Roth IRA:
Eligibility: To contribute to a Roth IRA, you must have earned income and your income must be below certain limits.
Contribution limits: The maximum amount that you can contribute to a Roth IRA in a given year is set by the IRS and may change from year to year. For tax year 2024, the contribution limit is $7,000 if you are under the age of 50 and $8,000 if you are 50 or older.
Tax treatment: Contributions to a Roth IRA are made on an after-tax basis, meaning that you do not receive a tax deduction for your Roth IRA contributions. However, qualified withdrawals from a Roth IRA are tax-free.
Withdrawal rules: To make tax-free withdrawals from a Roth IRA, you must meet certain conditions. These include being at least 59 1/2 years old and having held the account for at least five years.
Required minimum distributions: Unlike traditional IRAs, Roth IRAs do not have required minimum distribution (RMD) rules, meaning that you are not required to take distributions from your Roth IRA at any specific age.
Rollovers: You can roll over money from a traditional IRA or another employer-sponsored retirement plan into a Roth IRA, but you may have to pay taxes on the amount rolled over.
While a Roth IRA can be a useful tool for saving for retirement, there are also some potential cons to consider:
Eligibility limits: Not everyone is eligible to contribute to a Roth IRA due to income limits. If your income is above a certain level, you may not be able to contribute to a Roth IRA or may be subject to reduced contribution limits.
Limited contribution room: The maximum contribution limit for a Roth IRA is lower than for some other types of retirement accounts, such as a 401(k). This may make it more challenging for high earners to save as much for retirement as they would like.
No upfront tax benefits: Contributions to a Roth IRA are made on an after-tax basis, which means that you do not receive a tax deduction for your contributions. This is different from a traditional IRA or a 401(k), which offer tax deductions for contributions.
Early withdrawal penalties: If you withdraw money from your Roth IRA before you reach age 59 1/2, you may be subject to a 10% early withdrawal penalty unless you meet certain exceptions.
Investment risk: As with any investment, there is the potential for the value of your Roth IRA to go down, either due to market fluctuations or poor investment choices. It is important to carefully consider your investment strategy and diversify your portfolio to manage risk.
The 5-year rule for Roth IRAs refers to the requirement that you must hold a Roth IRA for at least 5 tax years before you can make tax-free withdrawals of your earnings. This rule applies to both traditional Roth IRA contributions and Roth conversions (when you roll over money from a traditional IRA or employer-sponsored retirement plan into a Roth IRA).
If you do not meet the 5-year rule, you may still be able to make withdrawals of your Roth IRA contributions without penalty, but any earnings that you withdraw will be subject to income tax and the 10% early withdrawal penalty unless you meet an exception.
There are some exceptions to the 5-year rule that allow you to make tax-free withdrawals of your Roth IRA earnings before the 5-year holding period is up. These exceptions include:
First-time homebuyer: You can withdraw up to $10,000 in earnings tax-free and penalty-free to buy, build, or rebuild a first home.
Disability: If you become disabled, you can make tax-free and penalty-free withdrawals of your Roth IRA earnings.
Qualified education expenses: You can make tax-free and penalty-free withdrawals of your Roth IRA earnings to pay for qualified education expenses for yourself or a family member.
Hi Jeff,
I may or may not have an issue. Over the past couple of years, I contributed roughly $2500 of post-tax money to my Traditional IRA. When I realized that Trad IRAs are made for pre-tax contributions, not post-tax and that I might get double-taxed later in life when I withdrawal the money, I then opened up a Roth IRA and redirected my future post-tax contributions to my Roth IRA.
Is there anything I can do about getting that post-tax Trad IRA money moved into my Roth IRA without paying more taxes or is the amount too small to worry about and just take the double-tax down the road?
Also, will I get double-taxed on profits from post-tax Trad IRA money down the road when I take distributions?
Thanks a lot Jeff! Love your YouTube Channel!
What is the most amount of money you can put into a ROTH IRA when starting the ROTH IRA?
Ie: I realize there are annual limits, however is there a limit to how much can go into the new ROTH IRA to get it started?
Different custodians may have a minimum you can fund a Roth IRA with. Most online brokers like M1 Finance and Robinhood don’t have minimums.
Please explain why a married person filing taxes separatly and living together not head of house hold can not contribute to a existing I. R. A..
Thanks, Karl Schroeder
I retired august, 2018. can I contribute to my Roth IRA in 2019?
Only if you have earned income
Is Betterment your favorite because of their disclaimer? “The website that directed you to Betterment is a Solicitor of Betterment (“Solicitor”) and can receive up to $1,250 in compensation from Betterment LLC if you open an account through this page. You will not be charged any fees or additional costs for being referred. The Solicitor may promote Betterment’s investment adviser services and may offer independent analysis and reviews of these services. Betterment and the Solicitor are not under common ownership or otherwise related entities.”
Sorry but recharacterizing these conversations is no longer permitted! More shoddy reporting!
Can I recharacterize a rollover or conversion to a Roth IRA?
Effective January 1, 2018, pursuant to the Tax Cuts and Jobs Act (Pub. L. No. 115-97), a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA cannot be recharacterized. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans
It’s not shoddy reporting Matt, the laws keep changing faster than we can update articles.
I have been trying to get information as to how and when are taxes paid on a Roth IRA account.
it’s hard to find this information.
Hi Grace – That’s the point of the Roth IRA. If you don’t take withdrawals before age 59.5, and you’ve been in the plan for at least five years, there are no taxes.
May want to double check your guidance on recharacterization of a Roth Conversion. I believe it’s only allowed on Roth Contributions
Hi Jim – You’re right, there looks to have been a change on Jan 1, 2018. The article was correct when written however.
Correction: Recharacterization are no longer as of January 1, 2018. Source: https://www.irs.gov/retirement-plans/ira-faqs-recharacterization-of-ira-contributions
That’s correct Ernest.
I have a Roth IRA and my age is 84. From what I understand the Roth IRA is tax free upon withdrawal, and has been taxed at the time of opening into a ROTH account. It is also tax free to my dependents, upon my death. The interest or gains while in a ROTH account are also tax free. Confirm.
Hi Frank – Confirmed, but there may be some limitations with your dependents. You’ll need to discuss that with both your accountant and your plan administrator.
I put money in a vanguard targeted retirement account when I was making money on a w-2
Now I only make money on a 1099
Can I still put money in that account?
It depends on how the account is set up. If it’s a taxable account or an IRA, you can. If it was tied to an employer plan, than no. But you can do a rollover into an IRA, and continue making contributions.
I’m already retired. Would a Roth IRA still be beneficial?
Hi Carol – You can’t make contributions since you no longer have earned income. But you may be able to do a Roth IRA conversion with other retirement funds. Check with your accountant to see if it’s worth doing.
can I make a maximum roth contribution in dec. 2018 and then in jan of 2019
Hi Pat – As long as you qualify based on your income, you can make a 2018 contribution in December, and 2019 in January.
I am 52 and resigned from my job of ten years. I took out my 401k to do an indirect IRA.I. am thinking of doing CD IRA. I would appreciate your advice! Thx!
Hi Joe – Without knowing you personally, I’d say you have to determine your risk tolerance, investment goals and time horizon. CDs are VERY conservative investments, that will do little more than keep up with inflation. If you want to grow your money for retirement, you’ll have to add riskier investments, like stock funds. Do some soul searching, and talk to some people who know you well before deciding. You might even want to sit down and discuss it with a financial advisor.
Withdrawing contributions from Roth IRA is not actually penalty free. Once you withdraw contributions you lose the ability to receive the Saver’s Tax Credit for up to three years. This may impact future tax returns by hundreds or thousands, which can be a costly ‘penalty’. Can you confirm?
That’s a good question for a CPA Jeff.
I have both traditional IRA and Roth IRA. My wife passed away in 2010 and about a year ago I combined her Roth to my Roth account and combined her traditional IRA to my traditional IRA.
Does this affect my Roth 5 year exception?
Also still a little mixed up.
On my ROTH, do I need to pull it before 59 1/2 or after, so there is no penalties or taxes?
Hi Glen – The inherited IRA doesn’t affect your five year rule. The inherited Roth will be subject to it’s own 5 year rule. If it was met while your spouse was alive, it will be met for you with the inherited plan. You’ll avoid penalties and taxes if you wait until after 59.5.
Hi Jeff,
Thank you for your article and question answers. I’m stuck on the question of the 5 year rule for withdrawals from multiple Roth Accounts. My wife has a couple of Roth IRA’s which were started 10 and 8 years ago. She is now 57. She recently started a new job and i’m inclined to enroll her into their Roth 401k plan. The 5 year clock for this Roth 401k starts this year, 2018, do we need to worry about the 5 year clock for this new account, after she turns 59.5 (2020), since she already has had a Roth IRA for 12 years by 2020? Hope this isn’t too confusing. Thank you for any thoughts.
Hi Bill – The Roth 401k shouldn’t be a problem if she won’t take withdrawals before 59.5. I’d recommend taking distribution from the older Roth IRAs and avoid the Roth 401k until five years have passed.
I really messed up. I contributed to a small amount to a roth ira last year and did not end up earning income for the year. Since I have earned income this year, will I be able to apply (change) the contribution amount last year to this years contribution and pay the penalty? Please help.
Hi Lynn – You need to discuss this with an accountant. It is a problem, and he or she will have to create a strategy to deal with it. The good thing is there was no tax deduction, which should minimize any penalties.
Hi, I am 74 years old and retired last year at age of 73. I have recently opened traditional ira from my 401k and was thinking of opening Roth ira. Would it beneficial to open Roth ira or back door conversion to Roth ira? Since I am over 59 1/2, do I have to still wait 5 years before withdrawing from the Roth ira? Would it be beneficial to leave in traditional ira or do Roth ira for tax benefits? I also, bought stocks in my traditional ira and expecting few. Hundreds % gains this year and want to avoid or minimize tax, what is the best route to take? Thank you in advance. Sam
Hi Sam – Since you’re retired and have no earned income you won’t be able to make regular Roth IRA contributions. That will leave you with only the Roth conversion from either your IRA or 401k. As to whether or not that’s worth doing, you’ll have to crunch the numbers and see how it will affect you’re tax liability. If it’s a large amount you’ll probably want to do the conversion over several years to minimize the tax bite.
Because you’re over 59.5 you’ll be able to access the converted balance at any time. Tax will apply only on the investment earnings after the conversion, until the Roth has been in place for five years.
Wife died, 80 years old, and left Roth and Traditional IRA to son who is 56. Does the 5 years start over for him? After this year does he have to take out at money? Any penalties he should watch for?
Hi Bob – As long as the five year waiting period on the Roth IRA was met by your wife, your son won’t have to pay tax or penalty. But he will have to take distributions. That can be a lump sum, a five year average, or averaged over his lifetime.
On the traditional IRA, he can either take a lump sum or do withdrawals based on his life expectancy. He’ll have to pay tax on the distributions, but not the penalty. Consult with your tax preparer if you have any questions.
My Husband is 57 and I am 56. My husband is employed and I am not but our income falls in the bracket to open Roth IRA’s, I have a very small one in my name under $900. Can we contribute the $6,500 to my current Roth and can we also open a new Roth for him also contributing $6,500? We do file jointly so the next question is can we both contribute $6,500 every year even though I am not employed?
Hi Michele – You can. IRAs, including Roths, allow for a Spousal IRA. You can contribute even if you have no earned income, as long as your spouse has enough income to cover your contribution and his.
I started contributing to a Roth 401k each paycheck at work in Feb 2011. I opened a Roth IRA in June 2015. In December 2016 I rolled the 401k Roth to the existing Roth IRA. Subsequently in December 2017 I converted $20K of IRA money to the same existing Roth IRA. I am 65 and retired. With this mess of a timeline, when and how much can I start withdrawing penalty and Tax Free? Does the 5 yr rule on the latest conversion apply to any of the existing IRA Roths opened in 2011 and 2015? Thanx
Hi Gator – It shouldn’t, since they were pure Roths, not conversions. The issue will be on funds taken from the IRA conversion before five years, but only on the income earned on the balance. Talk to an accountant about this, it is pretty messy.
I am married and file separately. is there anyway i could contribute to a Roth IRA. My income is more than 10K. I really want a Roth account, but cannot file jointly. Is there anyway around this, and why is this rule in place?
Hi Mike – The $10k income limit is a serious problem if you’re married filing separately. You might try making a contribution to a traditional IRA, then doing a Roth IRA conversion. That’s the “backdoor Roth IRA”.
I have had a Roth IRA for 6 years and I took money out before 59 1/2 . Do I’ve to pay taxes? I contributed the max each year. At the time of withdraw I had $40k and $32500 was my invested $. The difference is gains. I withdrew $30k. Will I be subjected to paying taxes?
Hi Senior – Under Roth IRA order of distribution rules, you shouldn’t have to pay tax on $30k in withdrawals, since it’s less than the amount you contributed to the plan.
You wrote “Meanwhile, married individuals who file separately and have been actively participating in an employer-sponsored retirement plan should see no changes in the phase-out range.” Isn’t the income limit $10,000 for Roth IRAs if you are married and file separately? It seems to me this makes Roth IRAs unavailable for those who file married-separately, since if one spouse does makd less than $10K, it would probably be smarter to file jointly.
You’re absolutely right Lowell. The $10k limit (actually only a percentage of that) really does nullify the Roth IRA for MFS. It’s a heavy penalty imposed on that filing status.
Hi Jeff, First, thanks for your article. It’s very informative. I recently retired (4/1/17) at age 60. Upon retirement, I elected to convert a portion of my retirement into a 401K resulting in a lower monthly pension amount. I have been considering converting that 401K into a Roth 401K or Roth IRA in 2018. I will turn 62 y/o in Jan. 2019, therefore 2018 will be my lowest income/taxed year (I plan to file for SS in 2019). Just wanted to ask your opinion on this move. (I currently have approximately $43,000 in my 401K, $5000 in a 457, and $25,000 in traditional IRA’s.) Any thoughts on any of this…? Thank you so much! JPH
Hi Janelle – It looks like a solid strategy as long as the tax bite will be minimal. You’ll have to wait five years before the income earned on the Roth is tax-free, but after that you’ll have a tax free retirement income. Also, you won’t have to take required minimum distributions at age 70.5, so you can let the account grow for the rest of your life.
My husband and I both had Roth IRAs, and sold them both back this past year (2017) for an Enhanced Cash Surrender Value. We have had the IRAs since 2008, and both of us are in our early 60s. The way I understand what I’ve been reading, none of our cash distribution is taxable. Is this correct? We put the money in a savings account for now. Our main retirement savings is in 401K, 403B and savings accounts. The Roths only had around $8 thousand each, which we sold for $11, 628 each. They had barely increased in value from the time we opened them, and we hadn’t added to them beyond our initial $8,000 input, so we were glad to make some profit! (They had a death benefit, too, and we thought of them as our ‘funeral accouts’! )
Hi Patti – You should be OK. Since the Roth accounts are over five years old, and you’re both over 59.5, there should be no tax on the distributions.
If I make a non deductible contribution ($5.5k) to a traditional IRA for 2017 (before April) and 2018. Can I convert the total amount of $11k to a Roth in 2018 tax year.?
I do not qualify for a deductible IRA contribution for multiple reasons (Income, 401k etc)
Thanks!
You can. But the non-deductible IRA will have to be reported for 2017, and the total conversion in 2018.
My 17 y/o daughter income comes in the form of 1099-misc compensation of 2610 dollars for working once weekly. can we open a roth ira for 2610?
It’s earned income Tim, so you can open a Roth IRA for her.
I have had a Roth IRA for many years and transferred it between various companies, currently with Vanguard. I want to withdraw penalty free prior to 59 1/2, but I don’t have a solid record of my contributions to ensure I’m not penalized. What is the best way to get that data and ensure it matches what the IRS shows? Can I just ask the IRS what that number is?
Hi Jason – You can try that, but I don’t know if they’ll give out such specific information, at least not beyond the past few years. You might be able to get IRS transcripts that show your contributions. Of course, only the contributions made will be tax-free, not the investment earnings. I think you’ll be OK, but if you’ve moved money between accounts several times, the IRS might be confused and impose the penalty.
Can I roll over a Traditional IRA into a Roth IRA in 2018 (before April 17) in order to file the appropriate taxes into the 2017 filing?
Hi Andrew – Talk to the broker holding the traditional IRA. At worst, you can do a Roth IRA conversion, and not have to pay tax on the amount of the 2017 contribution (as long as you don’t deduct it on your taxes). You will have to pay tax on the investment earnings, as well as any pre-2017 contributions. Sorry there isn’t a simpler answer, but it all depends on how long you’ve had the traditional IRA and how much investment earnings you’ve had.
I am 54 years old. I have been converting approximately $10k every year of my Traditional IRA (which came from a 401k rollover) into my ROTH. Can I also contribute $6,500 of my earned income in the same year?
You can Ron, they’re separate events.
Dear Jeff: i am 57-1/2 and looking to start my first Roth IRA albeit quite late. I do not have any account to roll into it and will start with a cash contrubution of my own. Do I have to wait 5 years before withdrawl of any gains or may I make withdrawls on any of it’s income after I turn 59-1/2?
Hi Cherie – You will have to wait five years to withdraw the earnings portion even after turning 59.5. But you can still withdraw your contributions tax-free at any time.
My son made $6,200 and put $1,200 into his employers 403b plan. I want to help him save for retirement. How much can he put into a Roth plan? Is it the $5,500 limit (which when added to the $1,200 would mean $6,700 of total contributions, and $500 more than he made). Or, is his limited to $5,000? The bottom line is, while is income and therefore his 403b contributions are low, can I help him stuff his Roth IRA or must I coordinate 403b and Roth contributions to be not more than his total income?
Part 2. At such time he makes, say, $45,000 and fully contributes to his 403b, can he also contribute another $5,500 to a Roth (assuming limits are same as today)?
Hi Scott – I believe his total contributions are limited to his earned income, so the total can’t exceed $6200. Double check with a CPA to be sure. As to Part 2, he can contribute to both plans as long as he doesn’t exceed his income or the maximum limit of $55,000.
I currently do not have a retirement plan offered through my company and my wife is not employed. I know there is no AGI limit for traditional IRAs for individuals in our situation (filing jointly where neither has access to a retirement plan), but could we alternately open up a Roth IRA even if our income exceeds the current upper AGI limits? I cannot find if there are income limits (or waiver of those limits) for contributing to a Roth IRA assuming neither spouse has access to a retirement plan through their place of employment.
Hi Doc – Assuming you exceed the income limits, you aren’t able to make a Roth contribution. It doesn’t matter that you aren’t covered by an employer plan. You can find the income limits here.
In 2017, I rolled over a very small 401K into a Roth IRA when I lost my job. I invested the Roth money in a stock. It continues to lose money. I would like to close the Roth; take whatever money is in the account and use it to help pay for upcoming surgical/medical costs not covered by insurance. Do I have to pay taxes on the withdrawal? The amount of money is less than the original contribution. I am 75 years old.
Hi Barbara – Probably not. It will depend on how the rollover from the 401(k) was done. If you paid tax on the amount of the rollover (actually a conversion) when it was made, you shouldn’t have to pay taxes now. If it was a rollover of a Roth 401(k), then no taxes will be due either. Check with your tax preparer, who will know how the 401(k) rollover was accomplished.
Very Informative article. Thanks for your efforts.
I am on Social Security and no earned income now. I am 68 and expect to be around for quite awhile.
1. Can I open and contribute to a Roth IRA with only Social Security? If not, then I suppose some earned income is necessary to open one … maybe a part time job would work?
2. How long do contributions and any earnings have to stay in the Roth before any distributions are allowed?
3. In #4 “reason to have a Roth”, you stated that you can actually lose money due to risks. What are those risks?
4. What limitations are there for investments of Roth funds inside the IRA?
Thanks in advance.
Hi Mark – I’ll take each question one-by-one…
1. Nope, must be funded out of earned income, PT job will be fine.
2. 5 years normally, but you’re over 59.5 so you’re OK
3. Money can be lost in stocks, mutual funds, etfs, or any investments that have the potential to lose money.
4. It depends on the broker. Large brokers offer virtually unlimited investment options. Mutual funds families are limited to the number of funds they offer.
Thanks for the clear answers. Very helpful.
One more question for you. I am a FX trader – trading from within an LLC. I want to trade from within a Roth but I have a specific need. I need the trading platform called MT4 or Metatrader 4.
Only Forex.com sets this type of “need” up through a trust … trust gets funded. Most brokers (big or medium size) don’t use MT4.
I have searched a bit and found only FOREX.com. BTW I am a TD Ameritrade customer. Their charts leave much to be desired for trading FX.
Do you know of any brokers that do allow use of MT4 without a trust or is that necessary?
I’m sorry Mark, but I don’t.
Hi Jeff, I converted my wife’s 401k, from previous employer, to a Roth IRA. I cannot find anywhere if those monies are considered contributions and could be withdrawn without penalties or taxes, as you can do with the usual contributions. We did pay the taxes on them with the rollover.
Thank you
Christian
I would like to know if a person can make more than one withdrawal from their Roth IRA a year. Thanks
Hi Winona – There’s no limit on the number of withdrawals that you can make, but there may be tax consequences, depending upon the type of account that it is and how much you are withdrawing.
If it’s a Roth IRA that you have been contributing to on a regular basis, you can make withdrawals at any time. There will be no taxes or penalties on withdrawals that represent a return of your contributions. However there will be tax on the earnings portion of the plan, if the money is withdrawn before you turn 59 1/2 and have been in the plan for less than five years.
If the Roth IRA includes funds that were converted from a tax-deferred plan, then you will owe tax on the amount withdrawn, and a penalty if you are under 59 1/2.
But there’s actually no limit on the number of withdrawals that you can make.
I had a 401K account with the company I was working last year. On September I go laid off and retired , too. I’m 68 years old. I transferred the 401K to and IRA ac.
Will be good to change my IRA ac to a Roth IRA now to avoid the taxes when I will get 70 1/2 years old. Is it possible?
Which is the procedure to change from my IRA ac to a Roth IRA ac. ? Is it good to do it for saving money?
Thanks
Hi Edward – It will make sense to do a Roth conversion if you want to avoid required minimum distributions (RMDs) when you turn 70 1/2. In the Roth account, you’ll be able to let the money grow for the rest of your life, and take distributions only when you want. But please sit down with your tax preparer to determine if the conversion makes sense from a tax standpoint. You don’t want to do the conversion while you have a high tax rate, only to save the money from lower taxes when you start taking distributions.
Hi, I am still considering opening an roth 401 from the company I worked right now. Is that thing is the same as roth ira? If not, can I apply in a bank or any institutions outside my company for roth ira? Can I just contribute for 3 years only? How long do I have to contribute for roth ira?
Thanks
Mina
Hi Mina – You should take advantage of the Roth 401k at work. You can payroll deduct right into it. Also, the employer might make a matching contribution into your regular 401k so that will be extra money. You can also set up your own Roth IRA, but contributions will be limited to $5,500/$6,500 per year between the two accounts. You can contribute for just three years, as there is no time requirement on contributions.
My husband will retire on May 1 of this year. Are we eligible to contribute to our Roth IRAs through the end of this year? (2017) Or must we stop all contributions once he is no longer employed? I am aware that we can contribute for 2016 through April 17, but he will receive a sizable check for unused vacation…but those funds will not be available to us until AFTER his official retirement date. Thank.
Lani Miller
Hi Lani – You can make a Roth contribution for any year in which you have earned income, and that seems to be the case for 2017. Also, you can’t make a Roth contribution for more than you earned. So if his earned income was $4,000, the contribution will be limited to $4,000, even though the maximum is $5,500/6,500.
What are the implications if you invest in a Roth IRA to reduce your taxes owed on April 15th, then withdraw a large portion of your investment if needed within 6 months of investing. I’m over 60. Great info
If I added only $3500 to ROTH (for year 2015) before April 15 2016, but later added $2000 to max out my ROTH (for year 2015), do I need to amend my 2015 tax return?
@maya If the amount you contributed to your Roth IRA is different than what you reported to the IRS then I would definitely amend your tax return.
Thanks Jeff!
I transferred approximately $50M FROM MY IRA TO MAY R0TH IRA .CAN I TRANSFER $25M BACK TO REDUCE MY RMD. DAVE KWEDER
Hi David – I’m not sure exactly what happened. Is the transfer you’re referring to an RMD? If so, you can’t transfer the money back to reduce the RMD. Please discuss this with your tax preparer as there will be personal circumstances that can change the outcome, one way or another.
Consider: I contribute $5500 dollars in 2016 and it is invested and I make $1000. In 2016 I also withdraw $4500.
1) Can I add the $4500 back before the end of 2016 tax year without “over contributing”?
2) If I am only able to add back $3500, will the IRS see my total contributions as $2500, or will I be penalized for not removing the gains associated with my withdrawal?
Hi Davis – Wow, that’s a real theory question. Even if you could do it, I think the in-and-out will invite IRS attention so I’d strongly recommend against it. A CPA might tell you otherwise, but I’m of the opinion that returning either $4500 or $3500 could be classified as an excess contribution subject to stiff penalties. It might be better to use the withdrawn funds to make a contribution in 2017. But please discuss this with a CPA before proceeding as you might find yourself in a bit of a mess. I get what you’re describing in theory, but I don’t know if the IRS will see it that way.
I have a 401k from my previous employer but for the last 6mths i’very lost almost &5 thousands dollar and I’m afraid if I don’t so something with my money now then i’ll ended up losing all of it. I’ve been looking into a Roth ira or traditional ira not sure which one would benefit right now.
Hi Kerlyne – You can also lose money in a traditional or Roth IRA. The potential for loss is a part of investing, and it can’t be avoided with even the best investment strategies. That said, there are 401k plans that have such poor investment options that you’re more likely to lose money. If you suspect that’s the case, then you might rollover the 401k into a self-directed account. Just remember that you will have to pay tax on the conversion to a Roth IRA, but not on a traditional IRA.
I’m 37 now. I have savings, 401k, and a traditional ira from a previous job. I want to open more ira/savings options for myself and my wife for retirement. Would you recommend laddering ira cds(are these limited to the 5500 a year as well), opening a new roth ira for both of us, or even laddering tradition cds at this point. Also with the traditional ira from the rollover of the 401k, should i change that to a roth ira or roll that into my new 401k at work?
I earn over $100k/year, same with my spouse. We file tax jointly. Are we allowed to EACH open ROTH IRAs?
Hi Dino – Yes and no. Yes, in that you are entitled to each make a Roth contribution. But based on your combined income over $200k, you’re not eligible. The allowability of a Roth phases out on a modified adjusted gross income of between $186k to $196k for married couples.
I am over age 71. I would like to convert my IRA into a Roth IRA.
Does my age remove the no withdrawals for five years rule.
Thank You
Hi Jeff,
I turned 50 this year, 2015, on March 20.
Can I take out $6500 for the 2014 year as a catch up–even though I was 49 in 2014?
Do tell…
Thanks,
Jena
Can you buy a Roth IRA if I have no earned income ?
@ Bev No, unless you have a spouse that has earned income. Then you both could fund a Roth IRA.
Cannot find my answer to my Roth deposit question on your site. In fact everywhere I’ve looked for the answer to this simple question I’ve found that noone discusses it directly for some reason. I’ll try again.
My wife wants to move funds from her regular ira to a roth ira at the same place.
What rate will the deposit going into the roth be taxed at?
Does the rate change after a certain amount so a larger deposit is taxed at a higher rate?
Is this a subject I would need to clear up at my local irs office?
@ Lee
The rate will be whatever tax bracket you’re currently in. Think of the Roth Conversion as adding more income (getting a pay raise) to what you’ve already earned for the year.
Depending on the amount you’re looking to convert it could definitely increase if you’re put into a higher tax bracket.
My father wants to start a retirement fund for his grandkids, both work and ages are 27 and 29, he wants to put $10,000 per account. neither child has a retirement fund. Should we go standard IRA or Roth, are there limits to the amount grandpa can open the account with.
Regards,
Ryan
@ Ryan With your kids still being in their 20’s, I would go with the Roth IRA. With the IRA’s (both Roth and traditional) the most he can put it for them is $5,500 (in 2013).
Hello Jeff,
My husband and I have 6 Roth IRAs each. He wanted to ladder them so they mature at different times. We each have a Roth maturing soon and we are not sure if we should continue to ladder or add this maturing Roth to an existing account to compound interest. Does the bank honor the original interest rate ( which was higher than present one )? If so, maybe it makes sense to start adding money to the highest interest rate account and stop the laddering. Would appreciate your advice.
@ Heather It sounds like you have CD’s inside your Roth IRA’s. Remember: Roth IRA’s do not pay anything. They are just the holding account.
With CD’s, once they mature, you are then subject to whatever interest rate is available. Depending on when you took your CD’s out, I’m sure that the new rate is probably much lower. You won’t be able to add money to the old ones that are still paying a higher rate.
Hi Jeff,
Thanks for your insight. Say you work on commision so you are unsure what your final MAGI will be. Through the year you contribute to your ROTH and at the end of the year you are over the $188k or whatever the limit may be. What will you have to do?
Thanks!
Mike
@ Mike If you over contribute to a Roth IRA, you’ll just have to remove it. Check out IRS Form 590 for more details.
If this does happen, just contact your IRA custodian and they’ll be able to correct it for you.
Hi Jeff,
Can an individual max out there 401k ($17k) and also add $5k to there ROTH for 2012? However the total income is < 90K.
Thanks.
@ Thomas Since your income is below the Roth IRA phaseout threshold you can contribute to a Roth IRA.
Jeff,
Follow up question on the advice to Marc above.
If some of the principal was pulled after 5 years from a Roth IRA, will this have any tax implications on the continued contributions and their interest/dividends beyond this point up till 59.5 yrs?
Hey Jeff,
Not sure if you are still answering questions here, but I am still a little confused at the benefit of a Roth IRA over another vehicle. If I put money into a Roth I have a 5 year delay on being able to access it. I also have to wait till 59 to touch any interest made, however in a savings account the restrictions usually seem to be much less. I guess im looking for that single bullet.
@ Marc
Did you miss that tax-free earnings on any interest made?
If you open a savings account, you have to pay tax on the earnings. If you open an investment account and buy a stock that pays dividends, if you have to pay tax on the dividends.
If you open a Roth IRA and make any interest or dividends, you’ll never have to pay tax on any of it (if you leave it there until 59 1/2).
How’s that for a single bullet?
Can a conversion from a traditional IRA to a Roth IRA count as part of an RMD?
@ Charlie If you are over the age of 70 1/2 and you convert a traditional IRA to a Roth, you’ll have to remove the RMD first and it will not be able to converted to the Roth.
Just wondering what to do with some $$. I have a Roth IRA and a tradition IRA. I have a savings account, but I was thinking of putting it in my Roth. I have a retirement I live off , etc. Should I take the savings and convert it. If necessary, I can take it out for emergencies. I work part time and make about $10,000.
I am 65 and a widow of 4 years.
Just found your website. Thanks, Sandie
@ Sandie For now I would just leave the money in cash or in an investment account. The IRA (Roth or Traditional) probably won’t give you any real tax benefit to take advantage of right now.
Jeff, thanks for the info. My wife and I have set our goals for 2013 and starting our first Roth IRA was at the top. This helped a lot.
does roth distributions follow the same 59.5 rules as traditional iras
@ Pat Yes and no. You still have to wait until 59.5 to pull the interest and earnings out of the Roth IRA, but you do have access to the principal at any time. There a 5 year exception if the Roth IRA was recently opened.
My husband died in Apr 2012. I am the beneficiary of his 40lk and 2 Roths. Should I roll 401k into a Roth? (I have 2 Roths as well). Can I postpone any rollover into CY 2013 for tax purposes as I will have considerably less income that year on my own versus this year with his income. What are other and better options?
@ Camille First, I’m sorry for your loss.
Regarding your question, it’s really a tough one to answer without know more about your situation. A Roth IRA conversion is not black and white as there are so many factors that go into it.
You sure can delay the conversion into any year that you want.
My kids are in college and are doing a paid summer intern. Can they open their Roth IRA? Please advise. thanks.
@ Vincent
They sure can!
I want to fund a Roth Ira for my granddaughter. She is currently in a Teach for America position in New Orleans. How can I do this?
Thank you.
@ Cecile If your granddaughter has earned income then you certainly can open a Roth IRA for her.
Thanks for these tips. I had been looking all over on the IRA recharacterization rules!
Still, $5000 a year for roth IRA contributions ins’t very much. I don’t know how many people can really retire on such small yearly contributions.
If you started contributing $5,000 at age 25, continued contributing $5,000 until age 65, and your investments earned just 8%, by the time you were 65, you would have over $1.25 million in the account. Of course the annual contribution amount is indexed and could increase annually in increments of $500 but over a period of time, even $5,000 annual contributions are not chump change.
It’s important to maximize your contribution limits if you can afford them. The amount of compounding interest is so significant I can’t think of a reason not to fund an account.
Jeff: Thank you for the article/video. My wife and I actually did a traditional to Roth IRA conversation last year in order to be able to participate it. I’m glad you are spreading the word on this as I don’t see this tip publicized enough.
I appreciate the tips, as I’ll be attempting to max out my Roth IRA contributions in 2012.