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A Roth IRA accrues earnings on a tax-free basis and offers no tax-deferral. Any individual can establish and fund a Roth IRA in the year they have taxable compensation or self-employment income unless their income reaches the level where phase-out occurs.

What is a Roth IRA?

A Roth IRA is primarily an individual savings plan. Contributions can be made up to a specified limit on a non-deductible basis. This means, you can make a contribution to your Roth IRA but not take a deduction on your income tax for the contribution like you can with a traditional IRA. Withdrawals are tax free within certain limitations. This means any money earned by the Roth IRA is not taxed when you take a distribution within the conditions of the distribution.

How is a Roth IRA Set Up?

A Roth IRA must be set up with an IRS approved institution such as banks, some credit unions, brokerages, and so on. When you set up a Roth IRA, you will receive the IRA disclosure statement and the IRA adoption agreement and plan document. A Roth IRA can be established at anytime during the year but contributions for a tax year must be made before the owner’s tax filing deadline. For more information on setting up a Roth IRA, you should contact your accountant, financial institution, or broker.

What are the Advantages of a Roth IRA?

• Contributions can be made after age 70 ½ (unlike the age limitation of a traditional IRA)
• Eligible individuals may contribute up to a specified limit annually
• Contribution eligibility is not restricted by active participation in an employer’s retirement plan
• Withdrawals of earnings upon death or disability, for first time home-buying or after age 59 ½ are tax-free provided a 5 year wait has occurred

What are the Disadvantages of a Roth IRA?

• Premature withdrawals in excess of contributions are fully taxable and are also subject to an early withdrawal penalty
• Contributions are limited each year for each individual
• There is a phase-out rule for high income persons

What are the Maximum Contribution Limits?

• 2007..... $4000


• 2008..... $5000

For those 50 and over before the close of the taxable year, the following annual limit applies:

• 2007..... $5000


• 2008..... $6000

After 2008, the contribution is to be adjusted for cost-of-living increases.

What are the Phase-out Rules?

The 2007 phase-out rules for persons with a high earned income are as follows:

• Single:

If your income tax filing status is single, your Roth IRA contribution limit is reduced when your adjusted gross income is more than $99,000. Your contribution limit is zero when your adjusted gross income reaches $114,000.
• Married Filing Jointly:

Married persons filing jointly will have a reduced contribution limit for each persons Roth IRA if their adjusted gross income exceeds $156,000. If their adjusted gross income reaches $166,000, each persons contribution limit is zero.
• Married filing separately and living apart:

If you are married but file separately and have lived apart from your spouse for the entire tax year, your Roth IRA contribution amount will be reduced if your adjusted gross income is more than $99,000. You Roth IRA contribution limit will be eliminated if your adjusted gross income reaches $114,000.
• Married filing separately and lived with your spouse:

If you are married filing separately and lived with your spouse at any time during the tax year, your Roth IRA contribution amount will be reduced when your adjusted gross income exceeds $0.00 and will be completely eliminated when your adjusted gross income reaches $10,000.

The 2008 phase-out rules for persons with a high earned income are as follows:

• Single:

If your income tax filing status is single, your Roth IRA contribution limit is reduced when your adjusted gross income is more than $101,000. Your contribution limit is zero when your adjusted gross income reaches $116,000.
• Married Filing Jointly:

Married persons filing jointly will have a reduced contribution limit for each persons Roth IRA if their adjusted gross income exceeds $159,000. If their adjusted gross income reaches $169,000, each persons contribution limit is zero.
• Married filing separately and living apart:

If you are married but file separately and have lived apart from your spouse for the entire tax year, your Roth IRA contribution amount will be reduced if your adjusted gross income is more than $101,000. You Roth IRA contribution limit will be eliminated if your adjusted gross income reaches $116,000.
• Married filing separately and lived with your spouse:

If you are married filing separately and lived with your spouse at any time during the tax year, your Roth IRA contribution amount will be reduced when your adjusted gross income exceeds $0.00 and will be completely eliminated when your adjusted gross income reaches $10,000.

If you aren't sure whether or not you can contribute to a Roth IRA, consult with your financial advisor or the financial institution where your plan to contribute to the Roth IRA. You can also go to the IRS web site and complete the Roth IRA contribution worksheet in Publication 590.

What are the Distribution Rules?

If you have more than one Roth IRA, they are treated as a single account when calculating the tax consequences of distributions from any of them. To be tax-free, a distribution of earnings must meet both of the following requirements:

• the distribution must be made after the 5 year holding period


• the distribution must be made on or after the individual reaches age 59 ½, made to the individuals beneficiary or estate, made to the individual who is become disabled, or made for a first time home purchase.

Contributions can be withdrawn at any time without penalty or tax. Before making a withdrawal from your Roth IRA, you should check with your accountant, financial institution or broker.