Scott Gottlieb, CPA
Assistant editor: Susan A. Maffetone, CPA
Background on the Roth IRA
in 1998 married taxpayers having AGI not exceeding $150,000
($95,000 for singles) can annually contribute $2,000 to a Roth
IRA. Married taxpayers filing separate tax returns are not eligible.
Eligible Roth IRA contributions are phased out for taxpayers
with AGI from $150,000 to $160,000 ($95,000 to $110,000 for
singles). To allow IRA contributions, a special rule treats
a husband and wife filing separate returns and living apart
at all times during the tax year as not married.
Roth IRAs are more flexible in allowing contributions than regular
deductible IRAs. Working taxpayers, age 70 wQ or older, can
still contribute to a Roth IRA. Similarly, taxpayers with AGI
not exceeding $150,000 ($95,000 for singles) can still contribute
$2,000 each to a Roth IRA, even if they are active participants
in an employer's pension plan.
Upon the death of the Roth IRA owner, distributions must be
made by the end of the tax year containing the fifth anniversary
of the date of death or over the life expectancy of the designated
beneficiary starting by December 31 of the year following the
Roth IRA owner's death. If distributions do not commence by
Dec. 31 of the year following the Roth IRA owner's death, the
first distribution method is considered chosen.
During the taxpayer's life, mandatory distribution rules do
not apply to Roth IRAs. The taxpayer's spouse may be the sole
beneficiary of the Roth IRA. In that case, upon the taxpayer's
death, the surviving spouse is treated as the Roth IRA account
owner. The surviving spouses can name a new beneficiary and
accumulate tax-free income over the surviving spouse's life.
Upon the surviving spouse's death, the Roth IRA passes tax-free
accumulations to the newly named beneficiary. The beneficiary
of the surviving spouse then distributes the Roth IRA tax free
over his or her lifetime.
In computing the maximum contribution to Roth IRAs, taxpayers
must subtract from $2,000 all contributions made to deductible
and nondeductible regular IRAs. Though employers' "qualified
plans" don't reduce the amount an individual can contribute
to a Roth IRA, contributions made by or on behalf of an individual
under a SEP or SIMPLE IRA are treated as contributions to an
IRA. Thus an individual who makes elective contributions and
receives matching contributions to a SIMPLE IRA equal to $2,000
for the year is not eligible to contribute to a Roth IRA for
that tax year.
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