Kiplinger’s recent article on this topic asks “How Much Can You Contribute to a Roth IRA for 2018?” In its answer, the article explains that the maximum amount you can contribute to a Roth IRA for 2018 is $5,500, if you're younger than 50. Those age 50 and older can add an extra $1,000 per year in "catch-up" contributions. That is $6,500, which is the maximum contribution amount and the same as in 2017.
The actual amount you can contribute to a Roth IRA is based on your income. To be eligible to contribute the maximum for 2018, your modified adjusted gross income (AGI) must be less than $120,000 if you’re single or $189,000 if you’re married and filing jointly. The contributions start to phase out above those amounts. You can't put any money into a Roth IRA once your income reaches $135,000 if single or $199,000, if married and filing jointly. Roth IRA income limits have increased slightly from 2017.
Unlike contributions to a traditional IRA, which may be tax-deductible, a Roth IRA has no up-front tax break. Money goes into the Roth after it’s been taxed. However, when you begin withdrawing funds in retirement, your contributions and all the earnings will be tax-free.
Roth’s are also more flexible than traditional deductible IRAs. You can withdraw contributions to a Roth account anytime, tax- and penalty-free. However, if you want to withdraw earnings tax-free, you need to be at least age 59½ and must have owned the Roth for at least five years.
Roth’s aren’t subject to required minimum distributions (RMDs) after age 70½, and you can deposit money at any age, provided you have earned income from a job or self-employment. Traditional IRAs prohibit new contributions once you reach 70½, even if you’re working.
There’s no minimum age limit to open a Roth IRA, and you can contribute to another individual's Roth account as a gift. However, the recipients must have earned income, and you can only contribute an amount up to that person's annual earnings or $5,500, whichever is less.
The popular Roth IRA accounts are used by many to leave money to heirs. Beneficiaries do have to take distributions over time, but they don’t have to pay taxes on the distributions. That’s an attractive benefit!
Talk with your estate planning attorney and accountant about what IRA plan makes the most sense for your situation and your family. You want to make sure that what you choose aligns with your estate plan and protects your family.
For more information on the potential benefits of leaving a traditional or Roth IRA to an inherited IRA trust, and other estate planning topics, visit our website and schedule your consultation today!
Reference: Kiplinger (April 22, 2018) “How Much Can You Contribute to a Roth IRA for 2018?”