What Your Clients Need to Know About the Roth IRA

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Who is eligible to make Roth IRA contributions in 2018¹?

Single individuals with Adjusted Gross Income less than $135,000 and married couples with joint income less than $199,000.

Does it matter how old I am or whether I participate in a retirement plan at work?

No. You can contribute to a Roth IRA at any age if you have earned income (earnings from employment, including self-employment or alimony, not investment or rental income). And, participating in a plan at work doesn't limit your Roth IRA contributions.

How much can I contribute?

It depends on your adjusted gross income. You can contribute up to $5,500 ($6,500 if age 50 or older) a year if you are single and your income is less than $120,000, or married with joint income is less than $189,000. Use the Guide to Roth Contributions  to check your contribution limit.

Can my spouse also contribute?

Whether or not your spouse has earned income, if your joint income is within the allowable range, you can open separate Roth IRAs and contribute up to $5,500 each ($6,500 if age 50 or older), for a total of $11,000² each year (as long as your combined earned income is at least $11,000).³

Can I take a tax deduction for my contributions?

No, but you can always withdraw your Roth IRA contributions tax-free. Earnings may (or may not) be taxable, dependent upon if they are received as part of a "Qualified Withdrawal."

See IRS Publication 590-B for additional information.

Can I contribute to both Traditional and Roth IRAs?

Yes. You can divide your contributions between these IRAs, as long as your total combined contributions do not exceed $5,500 ($6,500 if age 50 or older) annually. And, if your income is above the limit to maximize your contribution in your Roth IRA, you can invest the difference in a Traditional IRA.

Can I put my Traditional and Roth IRA contributions in the same account?

No. You must keep Traditional IRA money separate from Roth IRA money.

When can I make contributions?

At any time during the tax year, or until April 15 of the following year.

When can I withdraw money from my account?

You can take money out at any time (see next question for tax consequences). And, you can keep your money in your Roth IRA as long as you like – the law does not require that you begin taking withdrawals at any specified age4.

How will my withdrawals be taxed?

When you withdraw money from your Roth IRA account, you first receive your own contributions, then any earnings5. (See examples below.) Your contributions come out tax-free, while earnings will be taxable unless you meet both of these conditions:

  • you make the withdrawal at least five years after the first tax year for which you made a Roth IRA contribution, and
  • you are at least age 59½, disabled or buying a first home (up to $10,000)6.

Also, after your death, withdrawals of earnings by your beneficiaries that meet the five-year holding period are tax-free.

Consider these examples:

  • Let’s say you contribute $5,500 to a Roth IRA. Assume a dividend of $150 is paid to your account, which brings its value to $5,650 (assuming the account has not fluctuated in value). You could withdraw up to your original $5,500 anytime, tax-free. But if you withdraw anything over $5,500, the additional amount will be taxable unless you meet the conditions for tax-free earnings.
  • Assume you contribute $5,500 to a Roth IRA. In this case, a dividend of $150 is paid to your account; however, its overall value declines by $200, which leaves $5,450 in the account. You can withdraw that entire $5,450 tax-free at any time, since you are not taking out more than your original investment.

What if I take earnings out of my Roth IRA before meeting the specified conditions?

Any taxable earnings you withdraw will be subject to ordinary income tax and, before age 59½, a 10% penalty tax. However, the penalty will not apply if you:

  • roll over your money to another Roth IRA within 60 days;
  • are permanently disabled;
  • start a periodic payment plan based on your life expectancy;
  • use up to $10,000 to buy a first home for yourself or certain family members6; or
  • pay higher education expenses for yourself or certain family members.

Also, the penalty will not apply to amounts your beneficiaries receive after your death.

See IRS Publication 590-B for a complete list of exception to the 10% penalty.

Can I transfer or “convert” my current IRA into a Roth IRA?

Yes. Almost everyone with an IRA (including Traditional, Rollover, SEP and SIMPLE IRAs) is eligible to convert to a Roth IRA. Even a former employer's retirement plan (e.g. 401(k), profit sharing, and 403(b)) may be eligible to convert to a Roth IRA.

Contact your advisor or see IRS Publication 590-A for additional information.

1For 2017, Adjusted Gross Income less than single ($133,000) and married filing jointly ($196,000).

2$13,000 if both spouses are age 50 or older.

3$13,000 if both spouses are age 50 or older and wish to contribute the maximum amount of $13,000.

4Although there are no required minimum distributions during the account owner's lifetime, distribution requirements may apply at death.

5Different tax rules may apply to money converted or rolled over from a Traditional IRA to a Roth IRA.

6A qualified first-time homebuyer withdrawal is one that does not exceed $10,000 during your lifetime and is used within 120 days to acquire a principal residence for yourself, your spouse or any of your children, grandchildren or ancestors. The new homeowner (and spouse, if married) must not have had an ownership interest in a principal residence during a two-year period prior to the date the new home is acquired.

This material is not intended to replace the advice of a qualified attorney, tax advisor, or insurance agent. Before your client makes any financial commitment regarding the issues discussed here, make sure he or she consults with the appropriate professional advisor.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our   literature section.

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