Roth IRAs 

With a Roth or Back-loaded IRA, contributions are not tax-deductible. However, qualified distributions from a Roth may not be included in income at all. To be qualified, you must have held the Roth IRA for at least five years plus meet one of the following requirements: 

Distribution made on or after you reach age 59½; distribution made to a beneficiary (or estate) on or after death; distribution made because you become disabled; or distribution to pay “qualified first-time home buyer expenses” (but this category of distribution is limited to a total of $10,000 during your lifetime).

The 5-year required time period begins with the first tax year a Roth contribution was made for your benefit. Earnings within your Roth IRA are tax-free to you and your heirs, generally speaking. Spousal rules are basically the same as those of regular IRAs (see IRAs).

For 2023 and 2024, you may contribute up to $6,500 and $7,000, respectively, (plus $1,000 catch up contribution if over 50 years of age by year-end) no matter how much your income is, to a Roth IRA. If you have an employer retirement plan and your adjusted gross income (AGI) reaches $218,000 (married filing jointly) the ability to use a Roth is gradually phased out. It phases out completely at $228,000 (just like regular IRA’s, but at higher levels). For taxpayers married filing separately, the phase-out range is from $0 to $10,000. For all others (single & heads of households) the 2020 phase-out range is $138,000 to $153,000.

You may contribute to both a Roth and a traditional IRA depending on your income. For 2023, your total IRA contribution for yourself in any given year is limited to $6,500 (plus $1,000 catch up contribution). Please note the deadline for contributions is April 15th following the tax year of deductibility (there is no extension of time for the contribution, this same rule applies to regular IRAs and SEPs).

Many traditional IRA owners wonder whether “to Roth or not to Roth?” referring to your option to convert a traditional IRA to a Roth IRA. Again, you can convert a traditional IRA to a Roth IRA regardless of your income level. You must make this conversion before the end of the tax year. You’ll still owe taxes on any deductible contributions and investment earnings – i.e., on whatever amount you withdraw to convert to a Roth. If married, you must file jointly to convert IRAs to Roth’s in that year. You must keep rollover Roth IRAs in separate accounts from those of traditional IRAs. (Distributions are considered made from actual contributions first, then from converted amounts, and finally from earnings on the money in the Roth IRA).

What’s more, when there is no specific Roth IRA rule, the rules for traditional IRAs apply. The complexities are wide-ranging. Be sure to discuss these issues with me before making a final decision on this type of retirement plan.