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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 MAGI3Income 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.
- 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 Roth IRA earnings can grow tax free, and earnings can be withdrawn tax free if you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%
Talk with your advisor
To learn more about strategies for retirement, contact your financial advisor and visit us at invesco.com/RetirementReady.
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