Roth IRA Rules for 2011

The Roth IRA rules are pretty basic to understand, yet, lots of people have trouble working within their limits. We all want to save money for our retirement, and Roth IRAs are a great alternative other than that of retirement plans sponsored by employers. Unlike in Traditional IRAs where contributions are tax-deductible, Roth contributions are not, but the withdrawals from Roth IRA are tax-free.

For better understanding of the specific Roth IRA rules, you can review the simple guidelines shortlisted below:

Eligibility

Individuals having taxed compensations can contribute to a Roth IRA account. These individuals get their income from wages, salaries, tips, bonuses, professional fees and other amounts received through services offered. There is no age limit to those who want to open a Roth IRA account as long as they derive their income from work.

Contribution Limits

IRA contribution limits 2011 for a Roth IRA account stays at $5,000 with catch up limit of $6,000. Catch up means that if you are a year older now after you turned 50 years old, then the limit of $5,000 will be added with $1,000 for a total of $6,000.

Income Limits

Although the rules of Roth IRAs are simple, not every individual can contribute to a Roth IRA account. The limits are as follows:

- For single filers, heads of household, married couples filing separately and not living together with an adjusted gross income of $107,000 is entitled a full contribution. But with an AGI exceeding $120,000 contributions will not be allowed.

- With joint filers having an AGI of $169,000 up to $179,000 are the only ones allowed a full contribution.

- Exceeding an AGI of $10,000 for married couples filing separately and living together will bar them from contributing to a Roth IRA account.

Distribution Limits

If you start taking money out of your Roth before reaching the age of 59 ½, an early withdrawal penalty of 10% shall be imposed. Also, withdrawals from this type of IRA should be made 5 years after the first contribution that you have made with your Roth IRA account.