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Eight Ways Money Can Make its Way Into a Roth IRA

Investing in a Roth

A Roth IRA offers benefits that include federal tax-free earnings growth and withdrawals,¹ no required minimum distributions (RMDs) during the original owner's lifetime and a wide choice of investment options. Let's take a look at eight ways you could potentially fund a Roth.

1. Contributions for 2013: maximum $5,500 or $6,500 (age 50+)

Eligibility²: Phaseout based on modified adjusted gross income (MAGI).

2013 Roth Contribution Eligibility Based on MAGI³

Income limits on contributions for single filers vs. married joint filers

Single filers with a MAGI of up to $112,000 can make a full contribution. Contributions are phased out starting at $112,000, and contributions cannot be made if the MAGI is in excess of $127,000.
Married joint filers with a MAGI of up to $178,000 can make a full contribution. This contribution is phased out starting at $178,000 and cannot be made if the MAGI is in excess of $188,000.

2. Conversions: Traditional IRA⁴ to Roth IRA

2013 Eligibility: Filers may convert regardless of income level.
Conversion amount is subject to tax (but no 10% penalty).
RMDs cannot be converted.

3. Direct rollover contributions of designated Roth 401(k) or Roth 403(b) accounts

Roth 401(k)/403(b) accounts can be rolled to a Roth IRA on termination from a plan even if the participant is not eligible to make an annual contribution.

4. Direct rollovers from qualified plans, 403(b)s and governmental 457(b) plans

2012 eligibility: Any income level
Conversion amount not counted toward MAGI
Conversion amount taxed; no 10% penalty

5. Rollovers from Roth IRA to Roth IRA

Similar to traditional IRA rollover rules

6. Inherited Roth IRA account (rules based on beneficiaries)

An inheriting spouse may leave IRA as inherited IRA or treat the IRA as his own (spouse must be sole beneficiary).
Nonspouse beneficiary may not roll to his own Roth, must leave the account in the name of the deceased and must distribute based on death distribution rules.

7. Transfers due to divorce

Any interest in a Roth IRA may be transferred to an ex-spouse by a divorce or separate maintenance decree.

8. Earnings

Earnings that accrue in a Roth account obviously count as money that has made its way into the account. Roth IRA earnings can grow tax free, and earnings can be withdrawn tax free if you hold the contribution for at least five years, and you are age 59½ or older. Note that withdrawals taken before age 59½ or within five years of making the contribution may be subject to a 10% withdrawal penalty.

Talk with your advisor

To learn more about strategies for retirement, contact your financial advisor and visit us at invesco.com/RetirementReady.

Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under US federal tax laws. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation. IRA owners are encouraged to seek the advice of an attorney or tax advisor who specializes in this area.

The information provided is based on tax laws currently in effect. There is a possibility that this tax legislation will be amended or repealed in the future. In that case, the outcome of a Roth conversion may not be advantageous. Additionally, Roth IRA conversion may not be suitable for your specific circumstances now or in the future.

The opinions in this piece are not necessarily those of Invesco. Information in this report does not pertain to any Invesco product and is not a solicitation for any product.

1. Source: Distributions from Roth IRAs are tax- and penalty-free if the five-year requirement has been met, along with one of these conditions on the part of the account owner: aged 59½; death; disability; qualified first-time home buyer.
2. Source: Annual contributions made to all of your Roth and traditional IRAs may not exceed the lesser of 100% of compensation (as defined in the IRS code) or the applicable annual dollar limitation. Must be made no later than the nonextended due date of participant's tax return for the year: April 15, 2014.
3. Source: Use Worksheet 2-1 IRS Publication 590 to calculate.
4. Source: This includes SEP and SIMPLE IRAs, after two-year holding period expires.

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisers for a prospectus/summary prospectus.

All data provided by Invesco unless otherwise noted.

Invesco Distributors, Inc. is the US distributor for Invesco Ltd.'s retail products. It is a wholly owned, indirect subsidiary of Invesco Ltd.

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