A Roth IRA retirement plan, Roth Individual Retirement Account, is a retirement product for putting money aside and is subject to most of the rules governing a Traditional IRA. Unlike a Traditional IRA, however, no contributions can be deducted. Roth earnings grow tax free as long as the rules are satisfied. Otherwise, they may be subject to potential tax and penalties.

In order to make a contribution to a Roth IRA retirement plan, a person must meet the following criteria:

1. He or she must have earned income. Earned income is monies that a physical job is completed and should be reportable to the IRS via 1099 or W-2 forms. (Wondered if could underline terms and then the client could click on them and get a definition).
2. A Roth IRA holder can contribute as long as they have earned income for the tax year.

When contributing for Tax Year 2008 and 2009, the maximum amount to put in a Roth IRA is $5,000 if the IRA holder is younger than 50 years old. Once he or she reach age 50 or above, Catch-Up Contributions can be made in the amount of $1,000. See the breakdown below.

It is important to note that all Roth IRA contributions for a particular tax year must be in the IRA by April 15th of the following year.

To be able to contribute to a Roth IRA retirement plan, the owner can contribute if he or she have one of the following taxable compensation and filing status:

1. If filing as single, head of household or married filing separately and not living with the spouse, a Roth contribution can be made if the modified Adjusted Gross Income, AGI, is at $101,000 or less. There is a phase out amount to contribution between $101,000 and $116,000. No Roth contributions can be made if the modified AGI is $116,000 or over.
2. If married filing jointly or filing as a qualified widow(er), a contribution can be made with the modified AGI of $159,000. In between $159,000 and $169,000, there is a phase out amount to contribution. No Roth contributions can be made if the modified AGI is $169,000 or over.
3. Married taxpayers who filing separately have a maximum adjust gross income of $10,000 only.

Traditional IRA assets can be converted to a Roth IRA. The important issues to remember:

1. The modified AGI must be $100,000 through tax year 2009. In 2010 and on, Congress has proposed there will be no limitations on income earned for a given tax year.
2. For tax year 2008 and 2009, all taxes are due the year of conversion. However, in 2010 only, Congress has propsed that income from the conversion will not be reported in 2010 unless otherwise indicated. The 2010 conversion income with be reported in two equal installments in 2011 and 2012.

Roth IRA distributions can be tax and penalty free in the following circumstances:

1. The original contribution or conversion has been in the account for at least the 5 year period, AND
2. The distribution is:
   • Made on or after the date the account holder reaches age 59 1/2 ,
   • Made due to disability,
   • Made to any beneficiaries upon the passing of the account holder,
   • Made under the First Home purchase rule.
     
   • Publication 590 will outline these and any exceptions.