A Roth IRA is a type of personal retirement account that’s similar to a traditional IRA (Individual
Retirement Account) but with some key differences. Most significantly, unlike a traditional IRA,
contributions made to a Roth IRA are not tax-deductible. That means that you cannot take an
deduction on your Roth IRA to reduce your taxable income. Even though there aren’t immediate tax
benefits to having a Roth IRA, there are other benefits. The most significant of these benefits being the
tax-free withdrawals that can be made in the future. But, to get these benefits you have to follow the Roth
IRA rules.

IRA Contribution Limits

Roth IRAs have an annual maximum contribution limit. In 2010, you are only allowed to contribute $5,000
to a Roth IRA, unless you are over age 50. In that case, you can contribute an extra $1,000 (for a total of
$6,000 annual contributions).

You’re allowed to own both a traditional IRA and a Roth IRA, but the maximum
IRA contribution limit is
$5,000 between the two accounts. That means if you contribute $3,000 to a traditional IRA, you can only
contribute $2,000 to a Roth IRA.

The Internal Revenue Service (IRS) won’t allow you to contribute more than your income to a Roth IRA. If
you make $3,000, you can only contribute a maximum of $3,000 to a Roth IRA.

Roth IRA Income Limits

There are certain income limits that restrict your ability to contribute to a Roth
IRA. The income limits are based on your adjusted gross income (your
income after tax deductions) and your federal income tax filing status.

If you file single or head of household, you must make less than $105,000 to
contribute the entire $5,000 to a Roth IRA. If your adjusted gross income is
between $105,000 and $120,000 you can make a partial contribution. If you
make more than $120,000, you cannot contribute to a Roth IRA.

If you file jointly, the full contribution income threshold is $166,000. The partial
contribution income limit is $166,000 to $177,000. If your combined annual
adjusted gross income is more than $177,000 you cannot contribute to a
Roth IRA.

Finally, if you file married filing separately, and you lived with your spouse at
any time during the year, and your adjusted gross income is $0 you can
make a full contribution.  For modified AGI from $0 to $10,000 the amount
you can contribute is
reduced. You cannot make a Roth IRA contribution if
your modified AGI is more than $10,000.

Only earned income can be contributed to an IRA. Unearned income, such
as interest payments and dividends, cannot be contributed to an IRA.

There are no age limits on Roth IRA contributors. In addition, there is no
Required Minimum Distribution (RMD). After 70 1/2, you can continue
contributing to your Roth IRA and you are not required to withdraw any
money from the account. (The opposite is true for a traditional IRA).

Roth IRA Withdrawal Rules

You are allowed to make a withdrawal from your Roth IRA, without penalty
if you do so within certain guidelines set forth by the IRS. When you make a
qualified IRA distribution, neither the principal deposited nor the interest earnings are taxed.

Qualified IRA distributions can be made five years after you opened the account and after you’ve reach
age 59 1/2. You may be able to make a qualified distribution before age 59 1/2 as long as the first
contribution was made five years ago and you’re making the distribution for one of these reasons: to
help purchase your first home, to pay for education expenses, you become disabled, you use the money
for medical expenses, or you rollover the distribution into another qualified IRA plan.

If you make a withdrawal outside the guidelines listed above, it’s classified as an early withdrawal and
will be subject to a 10% early withdrawal penalty as will as income taxes on the amount withdrawn.

A Roth IRA is a good choice for saving for retirement, but to get the maximum benefit from the account,
you must follow the Roth IRA rules.

To find more as it applies to both traditional and Roth IRA rules you may take a look at IRS
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Roth IRA Rules
When it comes to Roth IRA rules there are some
important issues to consider. They share some
similarities with their traditional IRA counterparts, but
are treated differently for withdrawal and tax purposes.
Roth IRA Rules