- Next Steps
- Open a Roth IRA
A Roth IRA is an individual retirement plan that, except as explained in IRS Publication 590, is subject to the same rules that apply to a Traditional IRA. To be a Roth IRA, the account must be designated as a Roth IRA when it is opened. Unlike a Traditional IRA, you cannot deduct contributions to a Roth IRA; but, if you satisfy the requirements, qualified distributions are tax-free. Also, you never have to withdraw funds in your Roth IRA as you would under the Traditional IRA’s Required Minimum Distribution requirements.
Generally, you can contribute to a Roth IRA if you have taxable compensation.
Move Assets Into a Roth IRA
You may be able to convert amounts from either a Traditional, SEP, or SIMPLE IRA into a Roth IRA. You also may be able to roll over amounts from a qualified retirement plan to a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA.
Most of the rules for conversion of funds into a Traditional IRA apply to a Roth IRA as well, with the exception of the one-year waiting period between rollovers. Choose one of four ways to convert funds:
- Rollover – receive a distribution from a Traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution
- Trustee-to-trustee transfer – direct the trustee of the Traditional IRA to transfer an amount to the trustee of the Roth IRA
- Same trustee transfer – if the trustee of the Traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount to the Roth IRA
- Rollover from employer’s plan into a Roth IRA – this includes funds in your (or your deceased spouse’s) qualified pension, 401(k), profit-sharing or stock bonus plan, annuity and tax-sheltered annuity plan and governmental-deferred compensation plan
Move Assets From a Roth IRA
As with a Traditional IRA, you can withdraw, tax-free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the Traditional IRA’s 1-year waiting period between rollovers. A rollover from a Roth IRA to an employer retirement plan is not allowed.
Taxation of Distributions
You generally do not include as gross income in your tax return qualified distributions from your Roth IRA(s) or distributions that are a return of your regular contributions. You also do not include distributions that you roll over tax-free into another Roth IRA. However, you may have to include part of other distributions in your income. Refer to IRS Pub. 590 Distributions
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements:
- It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit.
- The payment or distribution is:
- Made on or after the date you reach age 59½
- Made because you have qualified for a disability distribution.
- Made to a beneficiary or to your estate after your death
However, there are exceptions for first time home purchases, qualified medical expenses and disaster-related expenses. The SECURE Act, which became effective January 1, 2020, and the CARES Act, which became effective March 27, 2020 in response to Corona-virus pandemic and expanded the circumstances in which such early distributions may be made.
Minimum Withdrawals Do Not Apply to Roth IRAs
You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to Traditional IRAs do not apply to Roth IRAs while the owner is alive.
The content provided on this page is for informational purposes only and does not constitute a complete analysis of the rules governing the creation and use of a Roth Individual Retirement Account (IRA). It is intended to provide an overview only of the benefits, eligibility requirements, and funding limitations of Roth IRAs. For complete details regarding this type of savings plan, including definitions of a qualified compensation, distributions, and tax reporting, refer to IRS Publication 590 Roth