Roth IRA

A Roth IRA (Individual Retirement Account) is a great way to save money to supplement your retirement. Created by the Taxpayer Relief Act of 1997 (TRA-97), the Roth IRA represents an extremely attractive retirement savings opportunity for many individuals.

Contribution increases that stem from the Economic Growth and Tax Relief Reconciliation Act of 2001 make a Roth IRA even more attractive.

A Roth IRA differs from a traditional IRA in that the assets grow federally tax free. That means you'll never have to pay federal income taxes on your earnings. The trade off is that contributions are never tax deductible.

Tax Advantages

Depending on your personal situation, a Roth IRA may offer certain benefits that can help you now (and later). The biggest tax benefit of a Roth is that the earnings in the account grow free of federal (and in most cases state) income tax.


Roth IRAs are available to most investors (contributions to a Roth are available even after 70½ given that they have earned income) with earned income at least equal to the amount contributed. You can contribute to a Roth IRA even if you contribute to a Traditional IRA1, SEP-IRA, or other employer-sponsored retirement program.

A Roth IRA offers the flexibility to continue making contributions after reaching age 70½ and unlike a Traditional IRA, a Roth does not require investors to take minimum distributions after age 70½.

The maximum annual contribution limits are as follows:

YearContribution Limit

In addition to the contribution limits, workers age 50 and older will be able to make "catch-up contributions" or increased annual contributions of $1,000 annually.

  • Your can withdraw assets from your Roth IRA penalty free when the account has been open for five years and you are age 59½ or older.
  • You will be subject to penalties if you withdraw and your account has been open less than five years or if you are under age 59½.
Exceptions to PenaltyBefore the five-year holding period ends, you are subject to tax but penalties are waived if you are over 59½ AND funds are withdrawn for:
After the five-year holding period ends, taxes and penalties are waived if you are over 59½ OR funds are withdrawn for:
  • Higher education costs for you or your family members including tuition, books, supplies and room and board (student must be enrolled at least part time).
  • First-time home purchase expenses ($10,000 lifetime limit) to buy, build or rebuild a first home.
  • Death or disability.
  • Certain medical expenses including qualifying health insurance costs for certain unemployed individuals and un-reimbursed expenses exceeding 7.5% of AGI.
  • Withdrawals made in equal installments over the account holder's life expectancy.

You may also contribute to a traditional IRA while you contribute to a Roth IRA, however, your total combined IRA contributions cannot exceed the maximum annual contribution limit.

For more information about the Roth IRA, talk to your financial advisor today.         

WEBC012202/01 02/28/02

1 You may contribute simultaneously to a traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (traditional or Roth) IRAs totals no more than $5,000 for Tax Year 2011 and 2012 ($6,000 for Tax Year 2011 and 2012 if you are age 50 and older).       

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