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Individual Retirement Account
Roth IRA
ROTH IRA
Roth IRAs offer a different type of tax advantage. Contributions are not tax deductible, however, the interest and earnings accumulate tax-free. An account must be registered a Roth IRA when it is opened in order to receive the special benefits it provides.
Roth IRAs are similar to the Traditional IRA in many ways, but certain features make it a better choice for some individuals.
The contribution limit for traditional and Roth individual retirement accounts (IRAs) is $3,000 for the tax year 2003 and 2004. The limit will eventually increase to $5,000 in 2008, and then be subject to periodic costs-of-living adjustments (COLA) The following chart shows the new contribution limits for traditional and Roth IRAs.
| Tax Year | Contribution Limit |
| 2002 - 2004 | $3,000 |
| 2005 - 2007 | $4,000 |
| 2008 | $5,000 |
| 2009 and after | $5,000 + COLA |
Catch-Up Contributions:
individuals who have attained age 50 before the close of the taxable year (December 31) may contribute additional amounts, allowing them to "catch-up" on their savings. The "catch-up" amount is $500 for each year, until 2006 when it becomes $1,000. The following chart shows the new contribution limits for traditional and Roth IRAs including the "catch-up" amounts.
|
Tax Year |
Contribution Limit |
Catch-Up Amount |
Contribution Limit if Age 50 and Over |
| 2000 - 2004 | $3,000 | $500 | $3,500 |
| 2005 | $4,000 | $500 | $4,500 |
| 2006 - 2007 | $4,000 | $1,000 | $5,000 |
| 2008 | $5,000 | $1,000 | $6,000 |
| 2009 and after | $5,000 + COLA | $1,000 | $5,000 + COLA + $5,000 |
Withdrawals may begin to be made on the date an individual becomes 59 ½ . In order for earnings to be withdrawn tax-free, the funds must have been in the account for at least 5 years. Prior to age 59 ½, original contributions (not interest or earnings) may be withdrawn without tax penalty or income tax.
There is no requirement to begin taking distributions from a Roth IRA by age 70 ½.
