Didn't make a contribution to a Roth IRA for 2014?  It's not too late. You have until the April 15, 2015, tax filing deadline to make your Roth IRA contribution for 2014.

Contribution Deadlines

Besides the TAX-FREE income, here are a few advantages to contributing to a Roth IRA.

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  • Flexibility: You can withdraw your contributions at any time, at any age, for any reason without taxes or penalty. Although you normally must hold the Roth account for at least five years and be at least 59 ½ before you can tap the earnings tax-free and penalty-free, there are exceptions, including death or disability of the account holder or to use up to $10,000 to purchase a first home for yourself or certain family members. In addition, you can avoid the 10% early withdrawal penalty, but will still incur income taxes, if you withdraw earnings early to pay higher-education costs for yourself or a family member.
  • No mandatory withdrawals: Roth account holders are never forced to withdraw money (traditional IRAs require withdrawals beginning at age 70 1/2). This is particularly useful for estate planning purposes because it allows the account balance to continue to grow. Heirs pay no income taxes on inherited Roth IRAs but they are required to take distributions over their lifetimes.
  • Saving during retirement: You can make contributions to a Roth if you continue to work in retirement as long as you stay within the income limits. Traditional IRAs do not allow contributions after age 70 ½.



Other Benefits 

One caveat: If you earn less than the maximum contribution limit, you can contribute only as much as you earned. So if, (for example, you earned just $3,000, you could contribute only $3,000 to a Roth IRA for the year. Non-working spouses can contribute the maximum amount to a Roth IRA as long as the working spouse earns enough to contribute to both accounts and the household income doesn’t exceed the IRS income-eligibility limits. Learn more about Spousal IRAs.

Though it is true that Roth IRA account holders can make a withdrawal from their contributions at any time after opening the account, the same is not to be said about your growth or interest you gain, well not without some stipulations.


To withdraw from your earnings penalty free you must first be over the age of 59 and a  ½  and your initial contribution to your Roth IRA must be at least 5 years after the date that your are trying to withdraw on otherwise your withdrawal will not be considered a qualified distribution from your Roth IRA.

The 5 Year Rule

$5,500

Greater than $129,000

$114,001 to $129,000

$114,000 or Less

Greater than $10,000

$1 to $9,999

$0

Greater than $191,000

$181,001 to $191,000

$181,000 or less

Single

Married Filing Separately

Married Filing Jointly

Contribution Limit

Filing Status

Income Limit*

2016 Contribution Limits

What is My MAGI?

Eligibility

To determine whether or not you are eligible to open a Roth IRA account two things must be evaluated:

  1. Your current-year income
  2. Your tax filing status.

To get started, you must have “earned” income; income you receive from working, usually in the form of hourly wages or salaries. If you have income, the next step is to make sure you do not overstep the limits set by the federal government for Roth IRA account holders. This amount differs according to your own tax status.




MAGI, or Modified Adjusted Gross Income is defined as taking your adjusted gross income from tax forms and adding back previous deductions for items like student loan interest and higher education expenses. If you need more clarity, a more full explanation of MAGI can be found here.

 

The chart below categorizes the levels of income limits by tax filing status to prove or disprove eligibility. It also shows the maximum amount you can contribute each year if you do fall under those limits. These limits are set by the federal government. More information on these limits can be found here.

$5,500

$5,500

Ineligible for a Roth IRA

Ineligible for a Roth IRA

Ineligible for a Roth IRA