Roth IRA Eligibility

With most taxpayers showing a renewed interest in lowering debt and increasing savings, more people are paying attention to the benefits of Individual Retirement Accounts (IRAs). When deciding what type of IRA you want to invest in, you have a choice between Roth IRAs and traditional IRAs. Each have their own benefits and risks that should be carefully weighed before deciding what type of account is right for you. Here we look more closely at Roth IRAs and the eligibility requirements that must be met before contributing to this type of investment vehicle.

Who is eligible for a Roth IRA?

To be eligible for a Roth IRA you must have earned income in the year you are contributing to the IRA. Any person or married couple that has taxable compensation in the form of wages earned or income earned through self employment is eligible to contribute to a Roth IRA as long as the amount of earned income falls within specific guidelines. Other types of income that are eligible for use as a contribution to a Roth IRA include: commissions, bonuses, tips, salaries and any other income that appears on your W-2 in Box 1.

Income Eligibility Requirements

In order to qualify as a contributing participant in a Roth IRA, you must have a modified adjusted income that falls within the following guidelines:

• $144,000 for individuals who file their income tax return as single, married but filing separately or head of household.
• $100,000 for married individuals who have lived with their spouse in the year in question, that files a separate tax return.
• $166,000 for married couples who file a joint income tax return.

Inelibible Contributions

As previously mentioned, only earned taxable income is considered eligible for contributions. The following compensations are considered ineligible for contributions.

• Money earned from rental income or property maintenance profits.
• Money earned from interest or dividends.
• Compensation that is not considered as income.

Where can you open a Roth IRA?

To establish a Roth IRA you must meet income and compensation eligibility. Once you have determined you are eligible as a contributing participant to a Roth IRA, you must then establish where you can open your Roth IRA account. You must establish your account with a financial institution that is approved through the IRS. This generally includes federally insured credit unions, banks, brokerage companies and most savings and loan organizations.

Other Eligibility Requirements

Traditional IRAs have age requirements for contributing participants. Roth IRAs do not have these requirements meaning you can contribute to a Roth IRA at any age. You can also make contributions at any time within the calendar year as long as the contribution is made before the date your income tax return is due.

As with any individual retirement account, it is important all contributing participants fully understand how their retirement account is set up in order to gain the maximum benefits. There are general rules to consider when managing your IRA, however it is important to understand these rules can and will change over time. Make sure you remain abreast of these changes that could affect how your IRA is distributed and penalties that may be associated with distributions.

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