Roth IRA

The Roth IRA was established to help individuals save for retirement while providing the potential for tax-free income in the future. Unlike a Traditional IRA, contributions to Roth IRAs are made with after-tax dollars and are not tax deductible. However, qualified withdrawals, including earnings, will be received 100% income tax-free if IRS requirements are met.

Contributions
Individuals with earned income may contribute to a Roth IRA, subject to IRS annual contribution limits and income eligibility requirements. Contributions may be allocated between a Traditional IRA and a Roth IRA; however, the combined total contributed to all IRAs may not exceed the annual IRS limit. Certain non-working spouses may also qualify to contribute under IRS spousal IRA rules.

Eligibility to contribute to a Roth IRA is subject to IRS income limitations, which may change annually. Because these limits are adjusted periodically, individuals should consult current IRS guidelines or a qualified tax professional to determine eligibility.

Qualified Withdrawals
Qualified withdrawals from a Roth IRA are 100% tax-free and penalty-free if the account has satisfied the applicable IRS holding period of 5 years, and the account owner has reached age 59½, or otherwise meets an IRS exception. Contributions (principal) may be withdrawn at any time without taxes or penalties.

Unlike Traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) during the original owner’s lifetime.

Early Withdrawals
Withdrawals may be taken from a Roth IRA at any time; however, taxes and penalties may apply to earnings withdrawn before IRS qualification requirements are met. A 10% IRS early withdrawal penalty may apply unless an exception is available. Common exceptions may include:

• Payments made to a beneficiary following the account owner’s death
• Distributions due to qualifying disability
• Certain substantially equal periodic payment programs
• Qualified unreimbursed medical expenses
• Health insurance premiums for certain unemployed individuals
• Qualified first-time home purchase expenses
• Qualified higher education expenses

Beneficiary Benefits
Upon the death of the account owner, Roth IRA assets may be transferred to named beneficiaries according to IRS rules in effect at that time. Surviving spouses may have additional options, including the ability to treat the inherited Roth IRA as their own.

Roth Conversions
Existing Traditional IRAs may be converted to Roth IRAs. Amounts converted are generally taxable in the year of conversion, but future qualified withdrawals from the Roth IRA may be received income tax-free.

Tax Credit
Certain eligible taxpayers may qualify for the federal Retirement Savings Contributions Credit (Saver’s Credit) when contributing to an IRA or employer-sponsored retirement plan. Eligibility and credit amounts are subject to IRS income limitations and may change annually.

For additional information regarding IRAs and the Tax Credit income limitations, consult current IRS publications 590A and 590B or visit the IRS website. Because tax laws frequently change and every individual’s financial situation is unique, SNPJ recommends consulting a qualified tax professional, financial advisor, or attorney before making retirement planning decisions.

DISCLAIMER:
This information is provided for educational purposes only and is not intended as tax, legal, or financial advice. Because individual circumstances vary, you should consult with your tax advisor, attorney, or financial professional before making financial decisions.