You may be able to invest up to $2,000 in a Roth IRA each year.

A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement plan. However, it differs from traditional IRAs in that contributions are not deductible. You may contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is less than $110,000 ($160,000 if you are married and file a joint return, and $10,000 if you are married and file a separate return). The amount you may contribute to a Roth IRA is gradually reduced if your modified adjusted gross income is between $95,000 and $110,000 (between $150,000 and $160,000 if you are married and file a joint return, and between $0 and $10,000 if you are married and file a separate return). The amount you may contribute to a Roth IRA may be reduced by contributions you make to a traditional IRA. The amount you may contribute to a Roth IRA also may not exceed your taxable compensation. You may continue to make contributions to your Roth IRA after reaching age 70½.

Distributions made more than 4 years after the end of the first year a contribution was made to a Roth IRA are not taxable if made either:

1. after you are 59½,
2. because you are disabled,
3. to a beneficiary or your estate after your death, or
4. to buy, build or rebuild a first home.

Distributions that are a return of your regular contributions are always tax-free.

You may be able to convert (roll over) your traditional IRA to a Roth IRA. Conversions can be done through a trustee-to-trustee transfer or by taking the IRA out of one account and depositing it into another within 60 days from the date you receive it. Conversions are only allowed if your modified adjusted gross income is $100,000.00 or less. If you are

married, you must file a joint return unless you did not live with your spouse at any time during the year. You must include in gross income any amount you convert from a traditional IRA to a Roth IRA in the same manner that it would have been taxed had you withdrawn the amount and not converted it. The taxable amount is calculated on Form 8606, Nondeductible IRA's (Contributions, Distributions, and Basis) and shown on Form 1040 or Form 1040A. If you converted to a Roth IRA in 1998, you may include the taxable amount ratably over a 4-year period. If you converted to a Roth IRA in 1999 or later years, the entire taxable amount must be included in your gross income in the year of the conversion. If properly converted, the 10% additional tax on early withdrawals will not apply.

If you converted your traditional IRA to a Roth IRA, but were not eligible to do so (unless you re-characterize the amount you converted), your conversion will be treated as a taxable distribution from your traditional IRA. It may be subject to additional tax and a regular contribution to your Roth IRA, and may also be subject to an excise tax if it is an excess contribution.

You may decide to recharacterize your Roth IRA conversion by transferring in a trustee-to-trustee transfer the amount you converted (adjusted for net income) back to a traditional IRA. You may do this prior to the due date, including extensions, for filing your tax return. Show the conversion and recharacterization on Form 8606. If you have already filed your tax return timely, you have until October 15th to re-characterize, but you must file an amended return, using Form 1040X with Form 8606 attached.

For information on Roth IRA distributions see Topic 428. For information regarding Roth IRA conversions see Publication 590, Individual Retirement Accounts. Forms and publications may be downloaded from this site, or ordered by calling 1-800-829-3676.

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