What are the Roth IRA rules?

By Kay Bell Retirement Planning Bankrate.com

Retirement accounts get added attention during tax-filing season. That's because you must put money in an individual retirement account no later than the April return-filing deadline to get credit for the prior year. It doesn't matter whether your contribution is to a traditional IRA or a Roth IRA.

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Many taxpayers, however, find that a Roth works best for them. With a Roth account, you won't get an immediate tax break, but you won't pay any tax on your money when you eventually take it out.

The Internal Revenue Service, however, has specific rules on just who can have a Roth IRA and how much money can be contributed each year.

Roth IRA contribution limits


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?? 2011 2012
Younger than 50 $5,000 $5,000
Age 50 or older $6,000 $6,000

Income Limits

The first Roth IRA eligibility consideration is income. You must earn money to open any IRA. That means, if your only income is from unearned sources, such as investments, you cannot contribute to an IRA. You must get paid wages, a salary, tips, professional fees or bonuses.

And you can't put more money than you make in any IRA. So if your income is only $1,500, then $1,500 is the most you can contribute to a Roth.

There is an exception that allows Roth accounts for nonworking spouses. If you and your spouse file a joint return but one does not work, the employed spouse can open and contribute to a Roth IRA for the unemployed partner.

Generally, the contribution limits for a spousal IRA are the same as for the account held by the working wife or husband. IRS Publication 590, Individual Retirement Arrangements, has complete guidelines on opening a Roth spousal IRA.

However, know that if you make too much money, you're not eligible to open a Roth or to contribute to the account you opened when you were earning less. For a Roth, your earned income -- with some deductions you might have taken, such as for student loan interest, added back in --??must meet certain criteria.

No 2011 Roth if you make more than:


  • $179,000 if you're married filing jointly.
  • $122,000 if you file as single, head of household or married filing separately and did not live with your spouse during the year.
  • $10,000 if you lived with your spouse at any time during the tax year but decide to file separately.

You have until the filing deadline to make contributions to your Roth and have them count toward the prior tax year. If you've already done so for last year and now want to contribute for 2012, the income limits are $183,000 for married joint filers; $125,000 for single taxpayers; and $10,000 for married couples filing separately.

And even if you're not quite at the top of these pay ranges, your Roth contribution could be limited if your modified adjusted gross income falls within certain limits.

Roth limited for income:


  • $169,000 to $178,999 for married couples filing jointly in 2011; $173,000 to $182,999 for the 2012 tax year.
  • $107,000 to $121,999 for single or head of household taxpayers or married couples filing separately and who did not live with their spouse in 2011; $110,000 to $124,999 for 2012 filings.
  • Zero to $10,000 for married couples filing separately who lived together at any time during either the 2011 or 2012 tax year.

You still can add to your Roth in these cases, but not the full allowable amount. Publication 590 contains work sheets and examples to help you determine your reduced Roth IRA contribution amount.

Conversion Taxes

Another Roth IRA income limit ended in 2010. Previously, you could not convert a traditional IRA to a Roth account if you made more than $100,000. Now, regardless of your earnings, you can??turn your old retirement account into a Roth.

Such conversions, however, mean you'll owe taxes on any traditional IRA money on which taxes were deferred.

If you converted your traditional IRA to a Roth IRA in 2010 and did not pay all the taxes due on that tax year's filing, you must pay half of the conversion tax bill with your 2011 return. Report the amount that is taxable on line 15b of Form 1040 or line 11b of Form 1040A. The remaining half is due when you file your 2012 return in 2013.

Also note that while the conversion option for taxpayers with incomes of more than $100,000 is in effect for years after 2010, the two-year conversion tax deferral is allowed only on conversions made that year. Any taxes due on 2011 or future year conversions must be paid by the time you file taxes for the tax year in which??the traditional IRA is converted to a Roth.

Age Limits

Finally, one of the more appealing Roth IRA rules is that they do not have an age limit. Whereas traditional IRA contributions are barred for individuals older than 70??, you can be any age and still contribute to a Roth IRA.

And you can leave money in your Roth for as long as you live. The IRS doesn't require minimum distributions from Roths as it does with traditional IRAs.

If you find a Roth is the right IRA for you, you have until the April tax-filing deadline to open one or contribute to your existing account and have it count toward the prior year's limit. After that, the money will be counted as a contribution in the next filing season.

For complete information on Roths and definitions of terms, check out IRS Publication 590, Individual Retirement Arrangements.

Copyright 2012, Bankrate Inc.

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