ROTH IRA
Discover the Benefits of the Roth IRA!
What is the Roth IRA?
The Roth IRA is a non-deductible retirement account that features Tax-Free withdrawals for certain distribution reasons after a five-year holding period.
Am I eligible for a Roth IRA?
Basically, there are two requirements for eligibility to contribute to a Roth IRA: you must have earned income (or your spouse must have earned income) and your Modified Adjusted Gross Income (MAGI) cannot exceed certain limits (see table below).
| Married Filing Jointly | Married Filing Separately | Single | Spousal Contributions |
| Up to $150,000 Yes |
Up to $10,000 Phases Out |
Up to $95,000 Yes |
Up to $150,000 Yes |
| Between $150,000 to $160,000 Phases Out |
Above $10,000 No |
Between $95,000 to $110,000 Phases Out |
Between $150,000 to $160,000 Phases Out |
| Above $160,000 No |
Above $110,000 No |
Above $160,000 No |
Note: A married person who lives apart from his/her spouse for the entire year and files separately is treated as single [Reg 1.408A-3, Q&A-3(b)].
How much can I contribute?
As long as you are within the prescribed MAGI limits, you may contribute any amount up to:
- 100% of your compensation, or
- The contribution maximum limit for the designated tax year, which ever is less (see the chart below).
| Tax Year | Under Age 50 | Over Age 50 |
| 2001 | $2,000 | $2,000 |
| 2002 | $3,000 | $3,500 |
| 2003 | $3,000 | $3,500 |
| 2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006 | $4,000 | $5,000 |
| 2007 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
Note: It's important to realize that maximum limit for the designated tax year is the aggregate amount that you can contribute to any Roth and/or Traditional IRA in a given year. For example, if you contribute $1500 to a Roth IRA, the most you could contribute is $1,500 to a Traditional IRA for 2002 tax year if you are under 50 years of age.
When is the contribution deadline for funding a Roth IRA?
Roth IRA's for the taxable year can be opened and funded any time between January 1st and the date your tax return is due for the year, excluding extensions. This is normally April 15th of the following year.
Do I pay taxes on my earnings?
No, provided you take the earnings as part of a qualified distribution. That's the best part of the Roth IRA. Unlike a Traditional IRA, you cannot take a tax deduction for any of the contributions that you make to a Roth IRA. However, when you're ready to take a qualified withdrawal, you pay no taxes on any of the earnings that your money has generated.
When can I withdraw funds without incurring any IRS Penalties?
You can withdraw funds from your Roth IRA without incurring a 10% premature distribution penalty for qualified distributions. A qualified distribution from the Roth IRA is when the Roth IRA has met the five year holding period, and:
- The Roth IRA owner attains the age of fifty-nine and a half
- Total and permanently disabled
- Paid to the beneficiary upon the IRA owner's death
- Qualified first-time home buyers
The penalty but not taxes may be waived on earning for certain exceptions:
- Substantially equal periodic payments
- Eligible medical expenses in excess of 7.5% of adjusted gross income
- Health insurance for IRA owners receiving unemployment compensation for 12 consecutive weeks during the current or preceding tax year
What is the Five Year Holding Period?
The five-year holding period begins with the tax year for which the first Roth IRA contribution is made.
What if I need access to my money now?
A helpful feature of the Roth IRA is that, for non-qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature distribution penalty. In other words, you can always get back your principal tax and IRS penalty free for any reason.
When must I withdraw funds?
You never have to take distributions from your Roth IRA. Assets held in a Roth IRA are not subject to age seventy and a half required minimum distributions.
What happens in the event of my death?
Your named beneficiary(ies) will receive the entire proceeds of your Roth IRA. The manner in which your beneficiary(ies) receives the funds is determined by the election made by your beneficiary(ies) within the guidelines of the law.
How do I move funds from a Traditional IRA to a Roth IRA?
For a rollover or conversion to a Roth IRA, the amount rolled over or converted from the Traditional IRA will be subject to full taxation. However, the funds will not be subject to a 10% premature distribution penalty. Rollovers from a Traditional IRA to a Roth IRA are not subject to the one rollover per 12-months rule.
Note: Conversions/rollovers to Roth IRA's completed in 1998 allowed the taxes to be paid ratably over a four-year period. After 1998, such conversions/rollovers are fully taxable in the year of the distribution.
How do I find out more about Roth IRA's?
Simply see a Customer Service Representative at any Peoples First branch location. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your Roth IRA.
For additional information, please contact the IRA Coordinator at (800) 624-9699or (850) 770-7000 in Panama City, FL.
