Roth IRAs

• What is the basic concept of a Roth IRA, and what are the associated tax benefits?
• When do I have to establish the Roth IRA?
• Am I eligible to contribute to a Roth IRA?
• What are the tax consequences of receiving a distribution from a traditional IRA and "rolling over" the distribution to a Roth IRA?
• What distributions from a Roth IRA will be tax-free?
• Must I commence required minimum distributions from my Roth IRA at age 70 1/2?
• Will my Roth IRA be insured by the FDIC?
• How do I establish a Roth IRA?

What is the basic concept of a Roth IRA, and what are the associated tax benefits?

If you are eligible, you may make contributions, within limits, to the Roth IRA. You make these contributions with after-tax dollars. The earnings realized by the Roth IRA are not presently taxed, and if certain distribution rules are met, will never be taxed. The great tax benefit to be realized from a Roth IRA is that you and your beneficiary(ies) will not have to include in your taxable income the earnings when distributed as long as the distributions are qualified distributions. You are not required to withdraw any required distribution amount from a Roth IRA while you are alive even though your beneficiaries will be required to receive certain required distributions, these distributions will be made over a number of years. This means the funds within your Roth IRA which your beneficiary(ies) will have inherited will continue to accumulate for some time within the inherited Roth IRA and will not be taxed when distributed. These are great tax benefits.. 

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When do I have to establish the Roth IRA?

You have until the due date (without extensions) for filing your federal income tax return, normally April 15, to establish and fund your Roth IRA for the previous year.

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Am I eligible to contribute to a Roth IRA?

You are eligible if you satisfy the following two requirements: (1) you must have earned income or compensation; and (2) you meet certain income limitations. Be aware that you are eligible to make contributions to a Roth IRA even though you are age 70 ½ or older. For a given year, you may be ineligible to contribute to a traditional IRA and/or the Education IRA.

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What are the tax consequences of receiving a distribution from a traditional IRA and "rolling over" the distribution to a Roth IRA?

The amount distributed to you from your traditional IRA will be included in your income in the year of receipt and will be subject to income taxes for that year. The 10% premature distribution excise tax, however, will not be owed even if you are younger than age 59 1/2.

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What distributions from a Roth IRA will be tax-free?

"Qualified distributions" will be tax-free. To be a qualified distribution, the distribution must occur after you have met the five-year holding requirement, and the distribution is made to you (1) after you have attained age 59 1/2, (2) after you have become disabled, (3) because of a first-time home purchase, or (4) to your beneficiary after your death.

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Must I commence required minimum distributions from my Roth IRA at age 70 1/2?

No. The required minimum distribution rules for living accountholders (age 70 1/2) do not apply to distributions from a Roth IRA.

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Will my Roth IRA be insured by the FDIC?

Yes, if you have invested your Roth IRA funds in savings or time deposits as offered by an insured institution. Funds deposited in all IRAs )traditional and Roth) at one insured depository institution are added together and insured in aggregate for a maximum of $250,000.

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How do I establish a Roth IRA?

Just come in and talk with us or give us a call. We will be happy to discuss the benefits of the Roth IRA with you and explain our investment options. We will be glad to help you with your conversion.

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