ROTH IRA CONTRIBUTIONS

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="0be285a1erlcgo.gif"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>INDIVIDUAL RETIREMENT ACCOUNTS</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="INDIVIDUAL RETIREMENT ACCOUNTS"><U><B>home</B></U></A></div> <div> <A HREF="id22.htm" TARGET="_top" TITLE="TRADITIONAL IRAs"><U>TRADITIONAL  IRAs</U></A>   |   <A HREF="id23.htm" TARGET="_top" TITLE="ROTH IRAs"><U>ROTH IRAs</U></A>   |   <A HREF="id24.htm" TARGET="_top" TITLE="SIMPLIFIED EMPLOYEE PENSIONS (SEPIRAs)"><U>SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAs)</U></A>   |   <A HREF="id26.htm" TARGET="_top" TITLE="SIMPLE IRAs"><U>SIMPLE IRAs</U></A>   |   <A HREF="id25.htm" TARGET="_top" TITLE="IRA Custodians"><U>IRA Custodians</U></A>   |   <A HREF="id72.htm" TARGET="_top" TITLE="Savers Credit"><U>Saver's 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TITLE="mailto:instructor@wallstreetinstructors."><U><B>E-Mail An Instructor</B></U></A></div> </NOBR></tD> </tR> </TABLE></div> <bR> <DIV ALIGN="LEFT"></DIV> <div> <B>Module 2</B></div> <div> <B>ROTH IRAs</B></div> <div> <B>__________________</B></div> <div> <B>ROTH  IRA CONTRIBUTIONS</B></div> <div> <A HREF="id75.htm" TARGET="_top" TITLE="ROTH IRA DISTRIBUTIONS"><U><B>ROTH IRA DISTRIBUTIONS</B></U></A></div> <div> <A HREF="id90.htm" TARGET="_top" TITLE="ROTH ROLLOVERS CONVERSIONS"><U><B>ROTH ROLLOVERS & CONVERSIONS</B></U></A></div> <div> <A HREF="id92.htm" TARGET="_top" TITLE="Review Questions Module 2"><U><B>Review Questions Module 2</B></U></A></div> <bR> <bR> <div> <A HREF="id22.htm" TARGET="_top" TITLE="TRADITIONAL IRAs"><U>TRADITIONAL  IRAs</U></A></div> <div> <A HREF="id23.htm" TARGET="_top" TITLE="ROTH IRAs"><U>ROTH IRAs</U></A></div> <div> <A HREF="id24.htm" TARGET="_top" TITLE="SIMPLIFIED EMPLOYEE PENSIONS (SEPIRAs)"><U>SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAs)</U></A></div> <div> <A HREF="id26.htm" TARGET="_top" TITLE="SIMPLE IRAs"><U>SIMPLE IRAs</U></A></div> <div> <A HREF="id25.htm" TARGET="_top" TITLE="IRA Custodians"><U>IRA Custodians</U></A></div> <div> <A HREF="id72.htm" TARGET="_top" TITLE="Savers Credit"><U>Saver's Credit</U></A></div> <div> <A HREF="id89.htm" TARGET="_top" TITLE="REVIEW QUESTIONS"><U>REVIEW QUESTIONS</U></A></div> <div> <A HREF="id50.htm" TARGET="_top" TITLE="PRINTABLE VERSION"><U>PRINTABLE VERSION</U></A></div> </td> <td valign="top" height=390 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <I>ROTH  IRA CONTRIBUTIONS</I></div> <bR> <div> Like traditional IRAs, persons who earned income during the year may open a Roth IRA.  However, unlike traditional IRAs, there is no maximum age limit on Roth IRAs.  Individuals over age 70½ who have earned income for the year may open and contribute to Roth IRAs.  For retirees who continue to work part-time, Roth IRAs may be their only available IRA option.</div> <bR> <div> The same general contribution limit applies to Roth IRAs: the lesser of:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0"> 100% of earnings or </div> <div> <IMG BORDER="0" SRC="Symb075c00b700f000000000.gif" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">$4,000 (in 2006 and 2007, $5,000 in 2008).  </div> <bR> <div> Those age 50 or older may contribute an additional $1,000 as a “catch-up” provision.  </div> <bR> <div> The maximum total yearly contribution that can be made by an individual to all IRAs  — that is, all deductible and nondeductible, traditional IRAs as well as Roth IRAs — is $4,000   (excluding rollover contributions) or $5,000 in the case of older contributors.  </div> <bR> <div> <I>The following discussion assumes Roth contributors are under age 50 unless noted otherwise.</I></div> <bR> <bR> <bR> <div> <B> <A NAME="income_limits"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B><B>Income Limits</B></div> <bR> <div> Unlike traditional IRAs, the tax code prohibits certain high income workers from contributing to a Roth IRA.  </div> <bR> <div> <B>Single taxpayers</B> who earn under $95,000 may contribute the full $4,000 to a Roth IRA.  The Roth IRA contribution is phased out (i.e., partial contributions) for single taxpayers earning between $95,000 and $110,000.  Single taxpayers earning $110,000 or more may not contribute to a Roth IRA.  </div> <bR> <div> For <B>married couples filing jointly</B>, a full $4,000 Roth IRA contribution is available for those earning under $150,000.  The Roth IRA contribution is eliminated over those having incomes of more than $160,000 with partial contributions allowed between $150,000 and $160,000. </div> <bR> <div> Taxpayers who do not qualify to make a full Roth IRA contribution may still contribute to non-deductible traditional IRAs instead (if under age 70½ ). </div> <bR> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <TABLE BORDER="2" CELLPADDING="8" CELLSPACING="4" WIDTH="489" BORDERCOLORLIGHT="#FFCC66" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#006699 > <tR> <tD VALIGN=TOP HEIGHT= 124 WIDTH="459"><div> <B>Example: </B></div> <bR> <div> <B>Mary McDonough, a single taxpayer with adjusted gross income of $135,000, is ineligible to contribute to a Roth IRA because her income exceeds $110,000. However, she may contribute to a traditional IRA. </B></div> <bR> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 195 WIDTH="459"><div> <B>Example:  </B></div> <bR> <div> <B>Jim and Bobbi Holmes, a married couple both working in 2007, earned $156,000 jointly.  They may make a "partial" contribution to a Roth IRA.  The phaseout for married couples disallows 40 cents for every $1 of earnings in excess of $150,000.  For, Jim and Bobbi the disallowance is $6,000 x .40 or $2,400.  They may each contribute up to $1,600 ($4,000 maximum - $2,400 disallowance) to a Roth IRA for 2007.  The remaining $2,400 may be contributed into traditional IRAs.</B></div> <div> <B> </B></div> </tD> </tR> </TABLE></div> <bR> <bR> <div> To be treated as a Roth IRA, the account must be designated as such when it is established.  Funds in a Roth IRA must be held separately from funds contributed to traditional IRAs.  So unlike traditional IRA accounts that can hold both deductible (before-tax)  and non-deductible (after-tax) contributions, taxpayers must establish a separate IRA account for their after-tax Roth IRA contributions.</div> <bR> <bR> <bR> <div> <B> <A NAME="excess_contributions"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B><B>Excess contributions</B></div> <bR> <div> As with all IRAs, funds contributed in excess of the annual total dollar limits are subject to a 6% penalty tax.  However, with Roth IRAs there is a new twist. Taxpayers are also subject to the 6% penalty tax for contributions to Roth IRA in excess of the Roth income limitations above.</div> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <TABLE BORDER="2" CELLPADDING="10" CELLSPACING="1" WIDTH="483" BORDERCOLORLIGHT="#FFCC66" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#006699 > <tR> <tD VALIGN=TOP HEIGHT= 177 WIDTH="455"><div> <B>Example:</B></div> <bR> <div> <B> Tag Adams, a single taxpayer, contributes $4,000 to a Roth IRA for 2007.  He earns $137,000 in 2007.  Although he does not exceed the $4,000 maximum permissible contributions, he is not eligible to contribute to a Roth IRA due to his income.  The $4,000 excess Roth contribution is subject to a 6% penalty, unless he withdraws it before his tax filing date.  He could redeposit those funds in a traditional IRA.</B></div> <div> <B>.</B></div> </tD> </tR> </TABLE></div> <bR> <div> As with all IRAs, the taxpayer may “cure” an excess contribution by withdrawing the excess at any time before the tax filing deadline.  In these cases, taxpayers avoid the 6% penalty.  Taxpayers may also correct the situation by underfunding future contributions — this does not eliminate the 6% penalty this year, but does avoid the cumulative nature of the penalty in the future.</div> <bR> <bR> <bR> <bR> <bR> <DIV ALIGN="LEFT"></DIV> <div> <TABLE BORDER="2" CELLPADDING="2" CELLSPACING="1" WIDTH="76" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 23 WIDTH="64"><div> <A HREF="id75.htm" TARGET="_top" TITLE="ROTH IRA DISTRIBUTIONS"><U><B>NEXT</B></U></A></div> </tD> </tR> </TABLE></div> <div> <I><B>  </B></I></div> <bR> <bR> </td> </tr></table></body>