Is a Roth IRA Taxable?
Is a Roth IRA taxable? Happily, the answer is "no" provided certain conditions are met. This specialized retirement account offers most tax payers many benefits and is worth investigation.
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Contributions to Your Roth IRA
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The contributions you make to your Roth IRA are not tax-deductible. You contribute to your Roth IRA with money on which you've already paid income tax. Because the money has already been taxed, it is not taxed again. Moreover, the interest and investment growth earned by the account is also tax-free provided certain conditions are met.
History
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The Roth IRA is named after the late Senator William V. Roth, Jr., a Republican who represented Delaware in both the U.S. Senate and House of Representatives. The account, which bears his name, came into existence in 1998 as a result of the 1997 Taxpayer Relief Act.
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Limitations
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There are maximum limits for your annual Roth IRA contributions. You can contribute up to $5,000 ($6,000 if you're over 50) annually. However, if you also contribute to a traditional IRA, the combined total may not exceed the stated limit. Also, your modified adjusted gross income may limit your contributions. Those amounts are $116,000 (for single filers in 2009) and $169,000 (for joint filers in 2009).
Distributions
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Qualified distributions must meet certain criteria. The account must have been set up five years prior, and you must be age 59½ or be disabled. According to the IRS, qualified withdrawals may also be "made to a beneficiary or to your estate after your death, or one that meets the requirements listed under 'first home.'"
Other Advantages
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Another advantage of a Roth IRA is that there is no minimum withdrawal required. Unlike a traditional IRAs, you are not required to begin withdrawing funds at age 70½. Also, you may withdraw contributions (not earnings) tax-free at any time.
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