ROTH IRAs

You make contributions to a Roth IRA with after-tax dollars (i.e., your contribution amount has already been taxed). Any earnings grow tax-deferred, and distributions are federal income tax-free if the IRA owner meets certain requirements.

Contribution Limits/Rules

If you're eligible to invest in a Roth IRA, the Roth IRA contribution limits for the 2008 tax year are $5,000 (or $6,000 if you're age 50 or older).

Unlike with Traditional IRAs, you can contribute to a Roth IRA after age 70½ (if you have earned income).

Eligibility Rules

For the 2008 tax year, you're eligible to make a full contribution to a Roth IRA if:

You're a single filer whose year 2008 AGI is $101,000 or less
You're a joint filer whose AGI is $159,000 or less

You're eligible to make a partial contribution for the 2008 tax year if:

You're a single filer and your 2008 AGI is between $101,000 and $116,000
You're a joint filer and your AGI is between $159,000 and $169,000

If you're married and file separately, you're not eligible for a Roth IRA if your AGI is more than $10,000. You're eligible for a partial contribution if your AGI is between $0 and $10,000.

Withdrawal Rules

Because you make Roth contributions with after-tax money, you can withdraw your original contributions at any age, free of federal taxes and penalties. Additionally, you can withdraw your earnings federal tax- and penalty tax-free, provided you have had the IRA for five years and satisfy one of the following conditions:

You've reached age 59½
You are using the funds for a qualified first-time home purchase (up to a $10,000 lifetime maximum)
You become disabled
You die. (Note that if you've had the Roth IRA for five years or more and you pass away, your beneficiaries will not owe income tax on withdrawals from the IRA, although they may be subject to estate tax.)

Any withdrawal that does not meet these conditions may be subject to a 10% IRS early withdrawal penalty.

Exceptions

However, the IRS may waive this penalty when distributions are used for:

Certain unreimbursed medical expenses
Medical insurance, providing certain conditions are met
A disability, if certain conditions are met
Payments received under a Substantially Equal Payment Plan over a five-year period or until age 59½ (whichever is longer)
Qualified higher education expenses

Note that the 10% penalty tax generally does not apply to distributions to Roth IRA beneficiaries (although this penalty may apply to spouse beneficiaries who choose to treat the inherited Roth IRA as their own).

Unlike with Traditional IRAs, Roth IRA owners do not need to take minimum distributions once they reach age 70½.

A Roth IRA may be appropriate if:

You meet the eligibility requirements.
You believe you may be in a higher tax bracket when you withdraw the money.
You may want to withdraw your original contributions before retirement.
You may need to draw from retirement savings for education costs or a first home.
You may want to use your retirement savings for estate planning. Because Roth IRA owners do not need to begin withdrawing money at age 70½, the Roth IRA provides an advantage for people who want to leave their retirement assets to their heirs. Learn more about Building Your Legacy.
You're age 70½ or older and want to continue investing in an IRA.

Neither TIAA-CREF nor its affiliates offer tax advice. See your tax advisor regarding your personal situation.