How to Determine Roth IRA Eligibility
If you’re considering opening a Roth IRA, you may still be uncertain about the eligibility requirements for securing an account. Basically, most people who are middle income wage earners can open an account. Still, there are stipulations.
First, let’s look at the annual contributions. As long as you make over the annual amount, you can contribute to a Roth IRA. Therefore, if you’re under 50 years old, you can contribute up to $5,000 annually. If you’re over 50, then the contribution limit is $6,000 per year.
With regards to income, the limits change annually. Therefore, it’s a good idea to check with the IRS each year to make sure where you stand. For the 2009 tax year, if you’re single, head of household or if you’re married and file separately but didn’t live with your spouse during the tax year, your limit is set at $120,000 for the year. Therefore, as long as you didn’t make more than the aforesaid amount, you can contribute up to $5,000 or $6,000 per year depending on your age.
If you’re married and file separately from your spouse but reside with him or her, then your income can’t exceed $10,000 for the year.
Anyone who is married and is filing jointly can contribute to a Roth as long as they don’t make over $176,000 annually.
Besides these criteria, there really aren’t any other eligibility requirements as far as making contributions. Nonetheless, you should be aware that you’ll incur a 10% tax penalty for early withdrawal. Therefore, if you try to access any amount from your account and haven’t held it for at least five years or if you’re under 59 ½ years old at the time you choose to do so, you’ll be penalized.
If you choose to rollover funds from, say, a 401K or traditional individual retirement account into a Roth account, then you can only do so if you make up to $100,000 per year. If you’re married and file your taxes separately from your spouse you can’t make any conversion from a traditional IRA to a Roth account. Conversions not only include rollovers which must be transacted within 60 days of distribution but also involve trustee to trustee transfers and same trustee transfers.
No matter when you open your Roth account, whether you’re 20 years old at the time or 50 years old, you aren’t restricted as to the amount of time you can make contributions. Unlike a traditional IRA that requires you stop saving at 70 ½, you can contribute to a Roth account as long as you like.
Some people believe they can add funds from a pension or the money they are paid from social security and deposit it into a Roth account. However, these types of income aren’t considered earned income. Whatever monies you make or earn are considered qualified contributions.
Other than the above restrictions with respect to income, most people can contribute or rollover funds into a Roth account.