When it comes to retirement planning, opening an IRA is often a great idea. However, when it comes to weighing all the pros and cons it becomes readily apparent that knowing the Roth IRA restrictions is paramount to understanding whether you can even take advantage of the great benefits behind this retirement vehicle. Unfortunately, when it comes to retirement planning few things are straight forward and some deeper understanding is necessary to best position yourself for success in the retirement game. Take the time to understand the Roth IRA rules and you will be well on your way to a leg up on all others.
Income Roth IRA Restrictions:
So when it comes to the Roth IRA it is important to understand that there are some basic restrictions that everyone needs to be aware of. The first thing to consider is whether you qualify for Roth IRA eligibility due to the income limits imposed with a Roth. The first thing you need to figure out is how you are going to file for your taxes. This is the key thing that determines the income limit. Married filing separately is the most restrictive in that you can only report a modified adjusted gross income (MAGI) of $10,000. The next level is filing single and comes with it an MAGI of $120,000. The most liberal limit is married filing jointly which brings with it a MAGI limit of $176,000. Modified adjusted gross income is the same as your adjusted gross income (see the bottom line on your 1040 for that number) with a certain deductions added back in. For the majority of people it will be the same as your adjusted gross income, but it is important to understand that you may need to add some of your deductions back in.
Contribution Limit Roth IRA Restrictions:
Another key restriction that people need to take into account is the contribution limit. This depends on your age assuming that you are below the MAGI thresholds discussed above. If you are above age 50 you are eligible for “catch up” contributions which increase the standard limit by $1,000. For those that are below this age, the maximum is $5,000 per person per year into the account. Given the above “catch up” rules you are afforded the extra $1,000 so that would be $6,000 per year into the account.
Required Distributions Roth Restrictions:
Unlike a traditional IRA, there are no age requirements for distributions. This is the case whether you are talking about a spousal Roth IRA, a self directed Roth IRA or basically any type of Roth. You may have heard that in an IRA you need to starting taking withdrawals once you reach the age of 70 ½. This does not apply to the Roth IRA, thankfully so you are free to withdraw from it as you see fit once you reach retirement age. It is important to note that you do NOT need to take the money out starting at age 70 ½ to avoid problems with the IRS.
When it comes to retirements options, it is quite often that the best option is a Roth IRA. Use the above stipulations attached to this great retirement vehicle to understand whether you are eligible to take part in the program. Being equipped with the knowledge of all the Roth IRA restrictions is key to fully taking your retirement game to the next level.