IRS Roth IRAs

April 11th, 2010

The IRS has strict rules on Roth IRAs. IRS’ rules on Roth IRAs can be found in the IRS publication 590 called Individual Retirement Arrangements or IRAs. In the IRS publication 590, the IRS outline in detail the rules on the Roth IRAs, Traditional IRAs, other IRAs and employer retirement plans. Taxpayers must pay attention to the IRS’ rules on Roth IRAs when:

opening a Roth IRA account
contributing to the Roth IRA account
distributing or withdrawing from the Roth IRA account

The IRS rules on opening Roth IRAs

Not everyone can open a Roth IRA account. The IRS requires that anyone wanting to open Roth IRAs must pass the income test which means the person must not make more than a certain income limit (currently $100,000) to be eligible to open a Roth IRA account.

IRS rules on contributing to Roth IRAs

Once a taxpayer satisfies the requirements on opening a Roth IRA account, he or she can contribute to his or her Roth IRA up to a certain contribution limit. The maximum amount of Roth IRA contribute is the smaller of:

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

IRS rules on tax deductions of Roth IRA Contributions

The IRS does not allow any tax deductions on the amount of Contributions to the Roth IRA account.

IRS rules on taxation of Roth IRA distributions

Qualified Roth IRA distributions are not taxable.

IRS rules on Roth IRA conversions

A Traditional IRA owner can convert his or her assets from a traditional IRA to a Roth IRA in the same way as a rollover. The IRS allows any conversion methods as follows:

Rollover

Trustee
to trustee transfer
same trustee transfer

Roth IRAs