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Roth IRA

Roth IRAs are a popular choice for individuals looking to save for their future and take advantage of income tax-free withdrawals during retirement.

Why consider a Roth IRA?

  • Income tax-free withdrawals - You may qualify for income tax-free withdrawals if you meet certain requirements.
  • Possible income tax credit - Individuals may qualify for an income tax credit based on the amount of their Traditional IRA contribution.
  • Control - You control the timing and amount of any contributions.
  • Protect existing retirement savings - A Roth IRA may receive designated Roth contributions from 401(k) and 403(b) plans and keep those amounts growing tax-deferred.
Roth IRA Contribution Limits

 

 Tax Year

Under Age 50 as of 12/31 of the Tax Year

Age 50 or Older as of 12/31 of the Tax Year
2015 $5,500 $6,500
2014 $5,500 $6,500

 

The annual contribution limit is a combined limit that applies to all of the Traditional IRAs and Roth IRAs held by an individual.  Contributions to an IRA cannot exceed the amount of earned income received during the year.  The deadline for making a contribution for the previous tax year is your tax-filing deadline (usually April 15) and does not include any extensions.

Qualifying for a Roth IRA Contribution

If you or your spouse has self-employment or W-2 income for the tax year in which you would like to make a contribution, you are eligible to contribute to a Roth IRA.  Unlike a Traditional IRA, contributions to a Roth IRA may be made after the age of 70½, as long as you or your spouse have earned income for the tax year in which you choose to make a contribution.   The maximum contribution you can make per year is the lesser of your earned income or the stated contribution limit for a particular tax year.

Your ability to contribute to a Roth IRA is determined by both your tax-filing status and your modified adjusted gross income (AGI).

If your tax-filing status is single or head of household:

Modified Adjusted Gross Income Limits for Tax Year 2015 Modified Adjusted Gross Income Limits for Tax Year 2014 Tax Deduction
Less than $116,000 Less than $114,000 Full contribution
At least $116,000 but less than $131,000 At least $114,000 but less than $129,000 Partial contribution
$131,000 or more $129,000 or more No contribution

 If you are married and file taxes jointly:

Modified Adjusted Gross Income Limits for Tax Year 2015 Modified Adjusted Gross Income Limits for Tax Year 2014 Tax Deduction
Less than $183,000 Less than $181,000 Full contribution
At least $183,000 but less than $193,000 At least $181,000 but less than $191,000 Partial contribution
$193,000 or more $191,000 or more No contribution

 

Qualifying for Income Tax-Free Withdrawals

If you meet certain requirements, you can withdraw funds from your Roth IRA without paying any additional income taxes. This is what separates the Roth IRA from other IRAs.

You must meet two qualifications to receive income tax-free withdrawals from a Roth IRA:

  1. Your Roth IRA has been established for at least five tax years, beginning with the first tax year for which a contribution was made to a Roth IRA; and
  2. You experienced one of the following: 
    • Attain the age of 59½
    • Die
    • Become disabled
    • Qualified as a first-time homebuyer ($10,000 lifetime limit) 

Further Information about Withdrawals 

  • At the time of a withdrawal, contributions are considered withdrawn before earnings, and contributions are not taxable when withdrawn.
  • Withdrawals of earnings that do not qualify for an income tax-free withdrawal will be subject to ordinary income tax.
  • A 10 percent premature distribution penalty may apply if you are less than 59½ years old.
  • You do not have to take mandatory distributions from a Roth IRA at age 70½, as you do with other IRAs.   

Should you convert a Traditional IRA to a Roth IRA?
When you convert a Traditional IRA to a Roth IRA, you pay taxes now in exchange for the potential for income tax-free withdrawals during retirement.  If you have funds available to pay the income taxes due on conversion, you may be better off converting to a Roth IRA, but you should consult your Modern Woodmen representative and your tax adviser about your individual circumstances.   

If you would have to withdraw money from your Traditional IRA to pay the taxes due to a conversion or if you believe you will need funds from your Traditional IRA in the next five years, a conversion to a Roth IRA may not be right for you.



Securities offered through MWA Financial Services Inc., a wholly owned subsidiary of Modern Woodmen of America, 1701 1st Avenue, Rock Island, IL 61201, 309-558-3100. Member: FINRA, SIPC. Products are available in most states. Individual representatives may not be licensed to sell all products.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Although Modern Woodmen of America does not charge an annual fee on IRAs, management and other fees associated with certain investments may still be charged.



 



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