The Roth IRA is a retirement plan that was created in 1997 and was intended to let employees who are not covered by company pensions to save money for the future retirement. The Roth IRA is one of the two forms of IRA and it has an attached IRS taxation advantage.

Knowledge of the Roth IRA rules and limits is important to acquire because it will give you guidance in decision-making. Once you are knowledgeable and do understand its rules and limits, you can come up with a better decision in money saving and in money managing.

The Roth IRA Rules

Before you can set up a Roth IRA account, you must first qualify with its set of qualifications. There is no specific age that is set as a limit above which individuals can no longer set up or open an account with the Roth IRA. Even the taxation advantage of the Roth IRA is only to qualified individuals or couples.

For a member to be able to avail of the tax-free money withdrawal, his or her income should not exceed the Roth IRA income limits. In case the individual’s income exceed the limit, he or she can still open a Roth IRA account but not with taxation advantage.

The total contribution annually is regulated through the implementation of a contribution limit. The limit may change from year to year depending on the inflation rate. When the rate of inflation is very immaterial in value, it cannot effect an increase in the contribution limit.

This is what happened in the year 2011. The year’s limit is similar to that of 2010 which is $5,000 for individual contributors who are 49 years old and below while $6,000 for individual contributors who are 50 years old and above.

Talking of the distribution rule, there is a set five-year taxable period after which the individual can start making withdrawals anytime. Drawing of cash before the expiration of the five-year taxable period will result to an early withdrawal penalty.

However, there are a list of instances and situations which will exclude the individual from the penalty. One of the list is the withdrawal of funds for the purpose of paying medical bills.

Filed under: Options and Investments General Info

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