A Roth IRA is a type of Individual Retirement Account whereby contributions are made from after-taxed assets and future withdrawals are tax-free. Some people maintain that this model of retirement investments is far superior to traditional IRAs since transactions within a Roth IRA have no tax impact. However, this model is not as simplistic as is projected and certain rules govern the manner in which such IRAs operate. Therefore, while setting up an IRA of either kind, one needs to understand the various rules of Roth IRAs, the most important of which are mentioned below.
1. Eligibility for Roth IRA depends upon your income.
Unlike a traditional IRA, Roth IRAs are not an option for everyone. There are certain income-groups who are not eligible to hold such a retirement account. The categorization is such that those earning over a certain amount annually are expected to have only the option of traditional IRAs available to them.
The income limits are liable to change. However, in contemporary times, single filers earning more than $131,000 annually, when their earnings are calculated as modified adjusted gross income, are disallowed from setting up a Roth IRA. Those with incomes ranging from $116,000 to $131,000 may make contribution but within a set limit. There are similar criteria for joint filers as well, with the corresponding limits being $183,000 and $193,000 respectively.