Definition of a Roth IRA

August 27th, 2007

What is the definition of a Roth IRA?

A Roth IRA is, according to the IRS, an individual retirement account or IRA that is subject to the rules applicable to traditional IRA accounts plus some exceptions.

Can an annuity be a Roth IRA?

According to the IRS’ definition of Roth IRA, a Roth IRA can either be an account or an annuity. Whether it be an investment account or an annuity, to become a Roth IRA, the account or annuity must be set up and designated as a Roth IRA from the initial point.

What is the definition of a Roth IRA contribution?

The definition of a Roth IRA contribution is the amount that the Roth IRA owner contribute (put money in) to the Roth IRA account or an annuity. By definition, Roth IRA Contributions are never tax deductible.

How much can I contribute to a Roth IRA account?

Just like for traditional IRA accounts, a Roth IRA owner can contribute the smaller of:

$4,000 if age under 50 or $5,000 if age 50 or older, and
taxable compensation for the year

What is the definition of a Roth IRA conversion?

If a traditional IRA owner wants to convert his or her IRA account into a Roth IRA account, he or she can do so under the tax laws on the Roth IRA conversion. The Roth IRA conversion is treated as an IRA rollever whatever the conversion method is used.

What is the definition of a failed Roth IRA conversion?

Not all Roth IRA conversions are successful. Before you sign a Roth IRA conversion agreement, you should make sure that you qualify for a Roth IRA conversion such as:

your modified adjusted gross income is $100,000 or less, and
you are not married filing separately

If your Roth IRA conversion fails then the converted amount or contribution needs to be recharacterized otherwise the IRS will slap the Roth IRA owner with Penalties and tax discussed in another section.

What is the definition of a Roth IRA rollover?

Just like traditional IRA, a Roth IRA account owner can withdraw from his or her Roth IRA account. If the owner of a Roth IRA withdraw all or part of his or her Roth IRA funds and then reinvest the same amount within 60 days to another Roth IRA, then there will be no tax or Penalties for withdrawing. A Roth IRA rollover is the action of taking assets from a Roth IRA and put them in another Roth IRA within 60 days. This is useful when a Roth IRA owner wants to open a Roth IRA account at a different investment company. A Roth IRA rollover does not apply to rolling over from a Roth IRA to an employer retirement plan such as a 401k.

Roth IRAs