Roth Iras: Test your Knowledge

How well do you know Roth IRAs? Here are fiveIt depends on four things: What year it is, how much
tough questions. Let's see how you do…money you make, your marital status and the type of
1. I am 72 years young and still working. Can I set up aincome tax return you file. If you are talking about a
Roth IRA?tax year before 2010 and your adjusted gross income
Yes. Unlike a traditional IRA, which does not allowexceeds $100,000 or you are married and file a
contributions past age 70 1/2, Roth IRAs have no ageseparate return, you can't convert your traditional IRA
limitations. You can continue to contribute to your Rothto a Roth. Period.
as long as you have compensation.After 2009, these limitations don't apply and you are
2. I am married, age 57, file a joint tax return and makegood to go. Moreover, you can spread the income tax
$65,000. I am a participant in a 401(k) plan at work anddue on the rollover over tax years 2011 and 2012.
put $5,000 into my own traditional IRA. Can I set up a5. I am 55 and have had my Roth IRA for 3 years. I
Roth IRA?just went on disability and need to withdraw a good
Not in the tax year in question. You already put yourportion of it. Is the withdrawal taxable? And since I am
regular contribution limit ($4,000) into your traditional IRAnot 59 1/2 do I have to pay the 10% penalty tax?
along with another $1,000 catch-up contribution which isYour Roth IRA consists of two elements: your
allowed because you are over age 50. In your case,contributions and earnings. You can take out any
you have made the maximum IRA contribution. If youamount up to your total contributions tax free.
put less into your traditional IRA, you could put theIn order for any earnings withdrawal to be tax free,
difference, up to $5,000, into a Roth IRA.the distribution has to be a "qualified distribution". To be
3. I am single and my modified adjusted gross incomequalified, the distribution needs to be made after five
for 2006 was $115,000. I have an existing Roth IRA.taxable years starting with the first Roth contribution.
Can I make a contribution for 2006?Then assuming this five year rule is satisfied, you can
No, you made too much money. For 2006, if yourtake out money tax free if you are over age 59 1/2,
modified adjusted gross income was less thandisabled, or to buy a first home for yourself, your
$95,000, you could make a full contribution to yourspouse, children or grandchildren ($10,000 maximum).
Roth IRA. The rules say if it was more than $110,000,The rules go on to say if you die and your spouse
you cannot make any contribution. If it was betweenelects to treat your Roth IRA as their own, any
$95,000 and $110,000, there is a formula to calculate adistributions would be qualified.
partial contribution limit.Distributions before age 59 1/2 are subject to a 10%
If you were married and filed a joint return, you couldpremature penalty tax. However, this tax only applies if
have made up to $150,000 and made a full Roth IRAthe distribution is includable in income. If you take out
contribution. If you were married and your modifiedyour contributions, these are not taxed.
adjusted gross income was over $160,000, noIn your case, you qualify for one of the exceptions:
contribution would have been possible. For incomesdisability. So there is no 10% penalty tax.
falling between these numbers, a partial contributionThese examples are based on my interpretation of
determined by a formula could have been made.the rules and should not be relied upon as tax advice.
Also note the income limits are now indexed; they willThe complexities of distributions from any qualified plan
be higher in 2007 and beyond.or IRA underscore the necessity to consult with a
4. I have an existing traditional IRA and I want to roll itqualified tax professional prior to making any
over to a Roth IRA. Is this possible?withdrawal.