Roth IRA

What is a Roth IRA?

The Taxpayer Relief Act of 1997 created an Individual Retirement Annuity (IRA) known as a Roth IRA, authorized by the federal government to help you accumulate funds for retirement. The Roth IRAs principal difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.

Who can contribute to a Roth IRA? If you receive compensation for personal services (wages, salary, commissions, tips, etc.), you may contribute to a Roth IRA. How much may I contribute? The maximum contribution amount is the lesser of your compensation or $5,500 ($6,500 if you are age 50 or older); reduced by your Modified Adjusted Gross Income as shown below. If you are married and filing a joint tax return with your spouse, you may also make a contribution to a separate Roth IRA established for the exclusive benefit of your spouse, even if your spouse has received no compensation during the tax year. Limits for the non-working spouse are the same as for the working spouse. You can make contributions to your Roth IRA anytime up to and including the due date of your federal tax return for the previous year, namely, April 15.

If your filing status (2014) is … And your modified adjusted gross income is … Then
Married filing jointly or qualifying widow(er) Less than $181,000 You can contribute up to $5,500 ($6,500 if you are age 50 or older).
At least $181,000, but less than $191,000 The amount you can contribute is reduced.
$191,000 or more You cannot contribute.
Married filing separately and you lived with your spouse at any time during the year. Less than $10,000 The amount you can contribute is reduced.
$10,000 or more You cannot contribute.
Single, head of household or married filing separately and did not live with spouse
any time during the year.
Less than $114,000 You can contribute up to $5,500 ($6,500 if you are age 50 or older).
At least $114,000, but less than $129,000 The amount you can contribute is reduced.
$129,000 or more You cannot contribute.

 

 

When can funds be withdrawn? Since Roth IRA contributions (principal) are made with after-tax dollars you may withdrawal these contributions tax-free and IRS penalty-free anytime. You may withdrawal earnings tax-free and IRS penalty-free as long as your IRA has been established for at least five years and you are over age 59½. You may also benefit from the following tax advantages: Tax-Free and IRS Penalty-Free Withdrawals for First-Time Home Purchase. As long as your Roth IRA has been established for at least five years, you can take tax-free and IRS penalty-free withdrawals ($10,000 lifetime limit) prior to age 59½ to apply toward buying a home for you, your spouse, your children or your grandchildren. The withdrawals must be used for qualified first-time home expenses. IRS Penalty-Free Withdrawals Prior to Age 59½ include:

  • Qualified higher education expenses for you, your spouse, your children or your grandchildren;
  • Payment of major medical expenses (exceeding 7.5% of your AGI);
  • Payment of health insurance premiums by certain unemployed individuals;
  • Death or disability of the IRA owner;
  • Distribution by way of certain substantially equal periodic payments.

Withdrawals in excess of contributions are, however, subject to income taxes. There is a UTUIA surrender charge of 5% for the first through third policy years, decreasing 1% per year through the seventh policy year. After seven years, 100% of the annuity value can be withdrawn without a UTUIA surrender charge. In addition, after the first policy year, 10% of the annuity value may be withdrawn once per policy year without a UTUIA surrender charge.

Am I required to take a distribution?

The Roth IRA does not require minimum distributions beginning at age 70½, giving you additional time to take advantage of tax-free earnings. In fact, you are never required to withdraw your money at any age, so you can pass your Roth IRA assets on to your beneficiaries if you wish. Note: All references to tax deduction and taxation of benefits refer only to the federal income tax law. Check state law for the applicability of state income taxes to IRA earnings distributions.

For more information, Contact your Field Supervisor or Karen Lasby , your Home Office annuity expert.