Definition of a Roth IRA Transaction
A Roth IRA transaction is any movement of money into or out of a Roth IRA. The IRS defines several types of Roth IRA transactions.
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Contribution
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A contribution is a transaction where money is transferred into the Roth IRA. As of 2010, an account owner's contributions are limited to $5,000 per year, which may be divided among multiple Roth and traditional IRAs. There are special allowances for non-income-earning spouses and people over 50.
Rollover
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A rollover is a tax-free contribution of money from one retirement account to another. Rollovers from a Roth IRA may only be moved into another Roth IRA; however, money from certain other retirement accounts, such as traditional IRAs, may be rolled over to a Roth IRA.
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Distribution
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A distribution is the withdrawal of money from the Roth IRA. Unlike in a SIMPLE or traditional IRA, there are no required minimum annual distributions after age 70 ½.
Early Distribution
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Withdrawing Roth IRA funds within five years of the first contribution to the account, when the owner is not yet 59 ½ or when the funds are not being used for approved purposes (e.g., first-time home purchase), qualifies as an early distribution. The tax penalty for an early distribution is 10 percent of the distributed funds.
Terminology
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These transaction terms also apply to traditional and SIMPLE IRAs, though transaction rules differ.
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