Roth IRA Details
Even if you are permitted to make a deductible IRA contribution, you may prefer to make a nondeductible contribution to a Roth IRA because withdrawals can be tax-free.
For Roth IRA distributions to be tax-free, they have to be made after the five-year period beginning with the year the account was established, and be made after 59-1/2, on account of death or disability, or (up to $10,000) for a first-time home purchase. That purchase can be for you, your spouse, your child, or even your grandchild.
More on the Non-Deductible Roth IRAs:
If a Roth IRA payout doesn’t meet these conditions, you’re treated as first withdrawing nontaxable Roth IRA contributions; the balance (representing earnings) is taxed and is subject to a 10% penalty for pre-age-59-1/2 withdrawals, unless one of several exceptions apply.
You can make Roth IRA contributions even after you attain age 70-1/2 (if you have sufficient compensation income), and you do not have to take minimum lifetime distributions from a Roth IRA after you reach that age as you do with a regular IRA. That makes Roth IRAs an excellent wealth-building vehicle for your family.
You have this choice only if your Adjusted Gross Income (AGI) doesn’t exceed certain levels. For joint return filers, the maximum annual Roth IRA contribution phases out over $150,000 to $160,000 of modified AGI. It’s $95,000 to $110,000 for singles. Contributions to Roth IRAs can be made up to the amount that would be allowed as a contribution to a traditional IRA ($2,000 for 2001), reduced by the amount you contribute for the year to non-Roth IRAs.
If you can’t make a deductible IRA contribution or a Roth IRA contribution, you still can make a nondeductible contribution to a regular IRA. The earnings in a nondeductible IRA are tax-deferred until withdrawn (and are subject to a 10% penalty if withdrawn before age 59-1/2, unless one of several exceptions apply). Unlike a Roth IRA, you must begin making minimum withdrawals by April 1 of the year following the year you attain age 70-1/2. The nondeductible contributions themselves aren’t taxed when they are withdrawn - only the earnings are taxed. If you’ve made deductible and nondeductible IRA contributions, a portion of each IRA distribution is treated as coming from nontaxable IRA contributions (and the rest is taxed).
For more information about RIA: https://www.RIAhome.com.
