Who Can Contribute to a Roth IRA?

• Your eligibility to contribute to a Roth IRA is based on guidelines established by the Internal Revenue Service (IRS). There is no age limit to contribute to a Roth, and your annual contribution must be equal to or less than your earned income for the year. Also, your adjusted gross income (AGI) must be within certain limits. As of 2011, you may make a full contribution to a Roth IRA if you file single and your AGI is $107,000 or less. You may make a reduced contribution if your AGI is between $107,000 and $122,000. If your AGI is over $122,000, you cannot contribute to a Roth IRA. If you're married and file jointly, your AGI must be less than $169,000 to make a full contribution. You may make a partial contribution if your AGI is between $169,000 and $179,000. You may not contribute if your AGI exceeds $179,000.
  
  

Contribution Limits

• The IRS also specifies a limit as to how much you may contribute to a Roth IRA annually. As of 2011, the contribution limit is $5,000 for individuals aged 49 or younger. If you're 50 or older, you may contribute up to $6,000 annually. Contributions for the current tax year may be made up until the deadline for filing taxes the following year (usually April 15).
  
  

Qualified Distributions

• One of the primary benefits of investing in a Roth IRA is that you may withdraw contributions at any time without incurring a penalty or owing taxes. To make a tax-free or penalty-free withdrawal on earnings, you must be age 59 1/2 or older, and the account must have been open for at least five years. The IRS never requires you to take minimum distributions from a Roth IRA. Withdrawals from traditional IRAs must be made annually beginning when you reach age 70 1/2.
  
  

Early Withdrawal Rules

• The IRS allows you to make an early withdrawal of earnings from a Roth IRA with no penalty in a few situations. For example, you can withdraw up to $10,000 to pay for the purchase of a first home. You can also make early withdrawals to pay for qualified education expenses, if you become permanently disabled or if you have unreimbursed medical expenses that are greater than 7.5 percent of your gross income.
  
  

Considerations

• Contributions to a Roth IRA are not tax-deductible. Compared to annual contribution limits for 401k and other employer-sponsored retirement plans, the contribution limit for a Roth IRA is relatively low. If you make contributions in excess of the annual limit, the additional amount is subject to a tax penalty. If your income is likely to increase, you may be phased out of contribution eligibility over time.