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taxmap/pub17/p17-092.htm#TXMP307b32c7 Roth IRAs(p125)

Regardless of your age, you may be able to establish and make nondeductible contributions to a retirement plan called a Roth IRA.

taxmap/pub17/p17-092.htm#TXMP044dda75 Contributions not reported.(p125)

You do not report Roth IRA contributions on your return.

taxmap/pub17/p17-092.htm#TXMP7800a2da What Is a Roth IRA?(p125)

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined earlier). It can be either an account or an annuity. Individual retirement accounts and annuities are described in Publication 590.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 701/2 and you can leave amounts in your Roth IRA as long as you live.

taxmap/pub17/p17-092.htm#TXMP6ecf29e1 When Can a Roth IRA Be Set Up?(p125)

You can set up a Roth IRA at any time. However, the time for making contributions for any year is limited. See When Can You Make Contributions, later under Can You Contribute to a Roth IRA?

taxmap/pub17/p17-092.htm#TXMP7db81d68 Can You Contribute to a Roth IRA?(p125)

Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:

• $166,000 for married filing jointly or qualifying widow(er),
• $114,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, or
• $10,000 for married filing separately and you lived with your spouse at any time during the year.

You may be eligible to claim a credit for contributions to your Roth IRA. For more information, see chapter 37.

taxmap/pub17/p17-092.htm#TXMP016aa57a Is there an age limit for contributions?(p125)

Contributions can be made to your Roth IRA regardless of your age.

taxmap/pub17/p17-092.htm#TXMP6db7feff Can you contribute to a Roth IRA for your spouse?(p125)

You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit (discussed in How Much Can Be Contributed under Traditional IRAs), you file jointly, and your modified AGI is less than $166,000.

taxmap/pub17/p17-092.htm#TXMP168d55ba Compensation.(p125)

Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, and taxable alimony and separate maintenance payments.

taxmap/pub17/p17-092.htm#TXMP67e48f0c Modified AGI.(p125)

Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.

1. Subtract the following:
   1. Conversion income. This is any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA.
   2. Minimum required distributions from IRAs (for conversions only).
2. Add the following deductions and exclusions:
   1. Traditional IRA deduction,
   2. Student loan interest deduction,
   3. Tuition and fees deduction,
   4. Domestic production activities deduction,
   5. Foreign earned income exclusion,
   6. Foreign housing exclusion or deduction,
   7. Exclusion of qualified savings bond interest shown on Form 8815, and
   8. Exclusion of employer-provided adoption benefits shown on Form 8839.

You can use Worksheet 17-2 to figure your modified AGI.

taxmap/pub17/p17-092.htm#TXMP7b5ba313 How Much Can Be Contributed?(p125)

The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs.

taxmap/pub17/p17-092.htm#TXMP5a4a3eea Roth IRAs only.(p125)

If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of the following amounts.

• $4,000 ($5,000 if you are 50 or older in 2007).
• Your taxable compensation.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced.

taxmap/pub17/p17-092.htm#TXMP00b0dc8b Roth IRAs and traditional IRAs.(p126)

If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.

This means that your contribution limit is the lesser of the following amounts.

• $4,000 ($5,000 if you are 50 or older in 2007) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.
• Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced.

taxmap/pub17/p17-092.htm#TXMP26d83bec Catch-up contributions in certain employer bankruptcies.(p126)

If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy in an earlier year, you may be able to contribute an additional $3,000 to your IRA. See Publication 590 to see if you qualify to make these additional contributions. If you qualify and choose to make these catch-up contributions, the higher contribution and deduction limits for individuals who are age 50 or older do not apply. The most that you can contribute to your Roth IRA is $7,000.

taxmap/pub17/p17-092.htm#TXMP41da5b7b Contribution limit reduced.(p126)

If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Use Table 17-3 to determine if this reduction applies to you.

taxmap/pub17/p17-092.htm#TXMP4659ae01 Figuring the reduction.(p126)

If the amount you can contribute to your Roth IRA is reduced, see Publication 590 for how to figure the reduction.

taxmap/pub17/p17-092.htm#TXMP7bec2a72 When Can You Make Contributions?(p126)

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

You can make contributions for 2007 by the due date (not including extensions) for filing your 2007 tax return.

taxmap/pub17/p17-092.htm#TXMP08320868 What if You Contribute Too Much?(p126)

A 6% excise tax applies to any excess contribution to a Roth IRA.

taxmap/pub17/p17-092.htm#TXMP6a49158a Excess contributions.(p126)

These are the contributions to your Roth IRAs for a year that equal the total of:

1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA, as described later) that are more than your contribution limit for the year, plus
2. Any excess contributions for the preceding year, reduced by the total of:
   1. Any distributions out of your Roth IRAs for the year, plus
   2. Your contribution limit for the year minus your contributions to all your IRAs for the year.

taxmap/pub17/p17-092.htm#TXMP35503d82 Withdrawal of excess contributions.(p126)

For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment applies only if any earnings on the contributions are also withdrawn. The earnings are considered to have been earned and received in the year the excess contribution was made.

taxmap/pub17/p17-092.htm#TXMP51a49e58 Applying excess contributions.(p126)

If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

taxmap/pub17/p17-092.htm#TXMP5136ecae Can You Move Amounts Into a Roth IRA?(p126)

You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA.

taxmap/pub17/p17-092.htm#TXMP0b0a2de2 Conversions(p126)

You can convert a traditional IRA to a Roth IRA. The conversion is treated as a rollover, regardless of the conversion method used. Most of the rules for rollovers, described earlier under Rollover From One IRA Into Another under Traditional IRAs, apply to these rollovers. However, the 1-year waiting period does not apply.

taxmap/pub17/p17-092.htm#TXMP234a1448 Conversion methods.(p126)

You can convert amounts from a traditional IRA to a Roth IRA in any of the following ways.

• Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.
• Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.
• Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA.

taxmap/pub17/p17-092.htm#TXMP3342450f Same trustee.(p126)

Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract.

taxmap/pub17/p17-092.htm#TXMP52985061 Converting from a SIMPLE IRA.(p126)

Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained earlier under Converting From Any Traditional IRA to a Roth IRA.

However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer.

taxmap/pub17/p17-092.htm#TXMP21fc71de More information.(p126)

For more detailed information on conversions, see Publication 590.

taxmap/pub17/p17-092.htm#TXMP62f47729 Failed Conversions(p126)

If, when you converted amounts from a traditional IRA into a Roth IRA, you expected to have modified AGI of less than $100,000 and a filing status other than married filing separately, but your expectations did not come true, you have made a failed conversion.

taxmap/pub17/p17-092.htm#TXMP77d1b07a Results of failed conversions.(p126)

If the converted amount (contribution) is not recharacterized (explained earlier), the contribution will be treated as a regular contribution to the Roth IRA and subject to the following tax consequences.

• A 6% excise tax per year will apply to any excess contribution not withdrawn from the Roth IRA.
• The distributions from the traditional IRA must be included in your gross income.
• The 10% additional tax on early distributions may apply to any distribution.

taxmap/pub17/p17-092.htm#TXMP3f1332e4 How to avoid.(p126)

You must move the amount converted (including all earnings from the date of conversion) into a traditional IRA by the due date (including extensions) for your tax return for the year during which you made the conversion to the Roth IRA. You do not have to include this distribution (withdrawal) in income. See Recharacterizations, earlier, for more information.

taxmap/pub17/p17-092.htm#TXMP53a938a8 Rollover From a Roth IRA(p126)

You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Most of the rules for rollovers, explained earlier under Rollover From One IRA Into Another under Traditional IRAs, apply to these rollovers.

taxmap/pub17/p17-092.htm#TXMP0a78b9ae Are Distributions Taxable?(p126)

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering rules for distributions, later.

taxmap/pub17/p17-092.htm#TXMP150d1340 Rollover from designated Roth account.(p126)

A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA.

taxmap/pub17/p17-092.htm#TXMP42ae2173 What are qualified distributions?(p126)

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
2. The payment or distribution is:
   1. Made on or after the date you reach age 591/2,
   2. Made because you are disabled,
   3. Made to a beneficiary or to your estate after your death, or
   4. To pay up to $10,000 (lifetime limit) of certain qualified first-time homebuyer amounts. See Publication 590 for more information.

taxmap/pub17/p17-092.htm#TXMP3c7ed302 Additional tax on distributions of conversion contributions within 5-year period.(p127)

If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted (the conversion contribution) that you had to include in income. A separate 5-year period applies to each conversion. See Ordering rules for distributions, later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion contribution that you had to include in income.

taxmap/pub17/p17-092.htm#TXMP77a2578f Additional tax on other early distributions.(p127)

Unless an exception applies, the taxable part of other distributions from your Roth IRA(s) that are not qualified distributions is subject to the 10% additional tax on early distributions. See Publication 590 for more information.

taxmap/pub17/p17-092.htm#TXMP088939cf Ordering rules for distributions.(p127)

If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions) and earnings are considered to be distributed from your Roth IRA. Regular contributions are distributed first. See Publication 590 for more information.

taxmap/pub17/p17-092.htm#TXMP610e0c74 Must you withdraw or use Roth IRA assets?(p127)

You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs.

taxmap/pub17/p17-092.htm#TXMP1766013b More information.(p127)

For more detailed information on Roth IRAs, see Publication 590.

Previous Page:  Publication 17 - Your Federal Income Tax - Individual Retirement Arrangements (IRAs) Next Page:  Publication 17 - Your Federal Income Tax - Alimony Use   to find additional occurrences of topic items.