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Roth IRA Guidelines
Investing in a tax-advantaged account, such as a Roth IRA, can be an important part of your retirement planning strategy. However, it's important to be aware of the restrictions on contributions and withdrawals so you can avoid any penalties.
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Roth IRA contributions are made on an after-tax basis, which means your contributions and earnings grow tax-free.
If you meet the income requirements, you can contribute to a Roth IRA—even if you contribute to a Traditional IRA (including a Rollover IRA or SEP-IRA) or other employer-sponsored retirement plan.1 Once your account is open, you can contribute as often as you like (up to the yearly maximum) from January 1 through the tax-filing deadline for the year (generally April 15, excluding extensions).
For 2009 and 2010, the maximum allowable contribution is $5,000, or $6,000 if you're 50 or over. To determine whether and how much you can contribute to a Roth IRA, try our interactive IRA Comparison Tool or view income charts for details. |
A Roth IRA can offer more flexibility than other retirement accounts because:
- Once you've reached age 59½
, you can take qualified distributions from your Roth IRA without penalties if you've held the account for at least five years.
- You aren't required to take distributions (withdrawals) from your Roth IRA during your lifetime—even after the age of 70½
, as with Traditional IRAs.
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If you withdraw money more than five years after the first tax year in which you made any contribution to your Roth IRA and meet one of the conditions listed below, it's considered a qualified distribution. This means you can take out your money—both contributions and earnings—without taxes or penalties, as long as you've satisfied the 5-year rule and one of the following is true:
- You're at least age 59½
.
- You use the withdrawal to pay for a first-time home purchase.
- You are disabled.
If you leave your IRA to your heirs, they can also withdraw funds without penalty. |
If you withdraw money from your Roth IRA within five years, the IRS considers that a non-qualified distribution, which means you could owe taxes and penalties. Certain exceptions may apply, so you should speak with your tax professional. You can also refer to the FAQ regarding the five-year rule for Roth withdrawals.
When you take out money from your Roth IRA within the five-year period, there is an order in which the different types of funds are taken out. Fortunately, the IRS rules for Roth IRAs work in your favor: Withdrawals first come from contributions (which are not subject to any holding period), then from conversions (on a first-in, first-out basis), and finally from earnings. |
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