Roth Ira Limits

Employees with high earnings may be frustrated that they cannot include Roth IRAs

in their financial planning for retirement because of their income levels. Due to the limits imposed on workers' incomes, these people may not be able to take advantages of these popular retirement accounts.

Roth IRAs, or Individual Retirement Accounts, are often discussed as viable investment tools for those who wish to retire comfortably - compared to conventional retirement accounts, Roth IRAs don't have minimum requirements for withdrawal once the account holder reaches the age of 70 and a half. In addition, contributions to this type of account are taxed when deposited, and not when withdrawn, if the holder meets certain requirements.

Usually, a worker who earns more than the income limits won't be able to contribute to a Roth IRA. However, this year saw an opening for high earners wanting to invest in this kind of retirement account - at the start of the year, income limits for investors were relaxed, allowing them to transition to a Roth IRA from an IRA. In the past, taxpayers with gross earnings of $100,000 and below were permitted to convert from IRAs to Roth IRAs. However, this doesn't mean that eligibility limits on income were cancelled entirely.

Conversion from IRAs to Roth IRAs requires the account holder to pay income tax on converted earnings and pre-tax contributions. The tax you pay is dictated by which tax bracket you're in, although this is the trade-off that gives you the tax-free withdrawal feature after you retire. Retirees may convert a portion of their total account earnings, or all of it, into a Roth IRA from a traditional IRA. Before you consider doing this, keep in mind that Roth IRA contributions aren't tax deductible, so consult with a tax professional or your financial planner to know more about the process.

by: Carina Smith

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