Roth IRA Regulations
Roth IRAs became available to investors in 1998 as an alternative to the traditional IRA, which became available in 1975. Both types of IRAs are tax-deferred investments, which means you do not have to pay taxes on the earnings while they are in the account.
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Eligibility
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To be eligible to contribute to a Roth IRA, your income must fall under certain limits that the IRS determines each year.
Maximum Contributions
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The maximum contribution for a Roth IRA is the lesser of your taxable income or an amount that the IRS sets each year. If you are 50 or older, you can contribute more. The annual limit is cumulative for all IRAs that you may own.
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Withdrawals
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Once the money is in your Roth IRA, you cannot take it out until you turn age 59 1/2, unless you have a special exception such as a permanent disability, medical expenses that exceed 7.5 percent of your adjusted gross income or certain higher education expenses.
Penalties
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If you withdraw money early from a Roth IRA, you may have to pay a 10 percent penalty on the amount you withdraw, in addition to regular income taxes. The penalty is meant to keep people from abusing the tax benefits of the Roth IRA for purposes other than saving for retirement.
Tax Advantages
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Earnings on a Roth IRA are tax free when you withdraw them at retirement.
Investment Choices
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Many investment options are available through a Roth IRA, including stocks, bonds, mutual funds, certificates of deposit and real estate.
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