(Revised Janaury 2016)

Contributions to a Roth IRA are not deductible. However, the trade-off from the loss of a tax deduction are two big tax benefits:

  1. All of the distributions should be tax-free as long as you are at least 59 years old or disabled when you receive them and the Roth IRA is at least 5 years old.
  2. Unlike traditional IRAs, and pension or profit sharing plans, you are not required to take any distributions by year-end after reaching age 70 . The longer the funds stay in the ROTH IRA, the larger your kid's inheritance (assuming that is your goal).

These two tax benefits are available to all holders of Roth IRAs, as long as the account holder has one Roth IRA that is at least six years old. Similar to other IRAs, annual contributions can't exceed $5,500 for 2015 and 2016.  You are entitled to an additional $1,000 contribution if you are over 50 years old at year end.   In all cases, maximum contribtuions to IRAs are limited to total earned income.

Non-working spouses are entitled to IRA contributions based upon their spouse's earned income as long as a joint tax return is filed. 

Your eligibility to make a current year's contribution to a Roth IRA depends upon your income level and filing status. Full ROTH IIRA contributions are allowed if your total inocme falls below the following income levels:

Filing Status
Year 2015 Ranges
Year 2013 Ranges
Single or head of household
$116,000 $11t,000
Joint tax return
$183,000 $184,000
Married filing separately
$0 $0

If your total income exceeds the preceeding income levels, your maximum ROTH IRA contribtion gets reduced.

  • For joint filers, the reduction is equal to $.50 for every $1 the total income exceeds the above income levels.  
  • For single and head of household filers, the reduction is equal to approximately $.67 for every $1 total income exceeds the above income levels.

If your filing status is married filing separately, you generally cannot make a contribution to a ROTH IRA.

If you meet certain requirements, you can transfer all or part of your present holdings from a traditional IRA into a Roth IRA; the transfer will trigger the same income as a taxable distribution. However, the transfer will be exempt from the 10% early distribution penalty and any Illinois income tax. In order to transfer assets from a regular IRA to a Roth IRA you must meet two requirements for the year:

  1. The IRA must be one that would qualify for rollover treatment, and the rules for this are complicated. However, the limitations usually apply to IRAs that are inherited from a deceased person and IRAs that received assets from a pension or profit sharing plan.
  2. Your tax return filing status cannot be married filing separately.

Conversions of traditional IRAs into Roth IRAs can be costly unless done correctly; therefore, professional advise is recommended. 

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