Gold Roth IRA Rules Explained

The Roth IRA’s most significant tax and planning advantage is that it provides certainty and peace of mind. You will not need to spend endless nights worrying about what tax bracket you will fall under at retirement because your distributions will be tax-free as a result of you deferring the tax write-off in your earlier years.

Another major benefit of the Roth IRA is that your distributions do not add to your adjusted gross income. If you made $60,000 and you withdrew $50,000 from your Roth IRA it’s like you only made $60,000 that year. Another great advantage of the Roth IRA is that it is not subject to the estate tax (also known as the death tax). This is because the Roth IRA has already been taxed earlier. The estate tax, although always evolving, can be extremely costly if you expect to have several million dollars at the time of your death since tax rates more than 40% can be very likely once you cross a certain value threshold.

roth ira rules


Pessimistic Possibilities


Although not the most pleasant of thoughts, it’s important to realize that should you not reach the age of withdrawing (591/2 years), you will not be able to realize the tax benefits associated with the Roth IRA. Even if the Roth IRA was inherited, the fact that you did not live a lengthy life means it’s likely that it would not meet the estate tax threshold, and thus would not have been taxed anyway.
Additionally, with the tax code constantly shifting, it is, of course, a possibility that the government will at some point change its approach to taxing Roth IRA’s. This would likely begin with smaller taxes, but the rates would then increase gradually over time. This risk is something to understand and consider as investing in traditional IRA’s enables you to realize the tax benefits immediately.
One of the most important benefits of the Roth IRA is the absence of minimum required distributions. This means it’s possible that you will never have to withdraw any money from your Roth IRA. When the time comes, if you’ve been able to support yourself from your other investment resources, your Roth IRA can be passed onto your heirs without ever having seen a withdraw by you.

Roth IRA Contributions Married Filing Jointly

If you are married filing jointly, you will be able to contribute the maximum allowed (currently $5,500 for individuals under 50 and $6,500 for those over 50) as long as your modified annual gross income is under $181,000. If your current income is between $181,000 and $191,000, the amount you can contribute would be reduced. If you make over $191,000, you are unable to make a Roth IRA contribution. These numbers change often, so please be sure to check with your tax advisor for current figures.

Single or Head of Household

If your filing status is single or head of household and you make under $114,000 you can make the maximum contribution. If you make between $114,000 and $129,000, the amount you can contribute would be reduced. If you make over $129,000, you are unable to make a contribution. If your status is married filing separately, the same will apply. To qualify for married filing separately you cannot have lived with your spouse at any time in the previous year. Once again, these numbers change frequently, so check with your tax advisor for current figures.

Determining Reduced Contribution

To determine your reduced contribution, you will need to know your modified gross income. Modified adjusted gross income is found by adding back certain deductions such as student loan deductions, foreign income, foreign housing deductions, etc. For example, if you are married, and your marginal adjusted gross income was $187,000 last year, below is how you would calculate it.

Take your $187,000 and subtract the number where the phase-out begins. In this case the phase out numbers for married filing
jointly is $181,000-$191,000. Subtract the $181,000 from your marginal AGI of $187,000. This leaves $6,000. You then divide the difference by 10,000 (different number for singles) which leaves yours with your reduction factor. Ensure you keep three numbers past the decimal. The answer to this equation would be 0.600. You then multiply your contribution limit by your reduction factor of 0.600. Currently, the maximum contribution is $5,500 for individuals under 50 and $6,500 for individuals over 50. So if you are 45 years old, you would multiply $5,500 by 0.600, which would equal 3,300. The final step is subtracting the 3,300 from the maximum contribution amount which is $5,500. The answer is $2,200 meaning that for that year you could contribute the $2,200 to your Roth IRA.

As a comparison, if you were single and fell within the reduced contribution amount you would substitute the $181,000 for the $114,000 and instead of dividing by 10,000 you would divide by 15,000.

Always check with your tax adviser to ensure that you are maximizing your contributions.


Examples of Roth IRA account – go here >>