Beginning in 1998, taxpayers can invest up to $2,000 in a new investment vehicle known as
a Roth IRA. This contribution is NOT deductible.
A Roth IRA is a trust account set up in the United States solely for the benefit of one individual.
It is a retirement account. Distributions from this account generally can only be used after the owner
has reached age 59½. However, it differs from traditional IRAs in that contributions are not deductible.
You may continue to make contributions to your Roth IRA after reaching age 70½. If contributions are left
for at least five years and taken out in a qualified manner, distributions are nontaxable.
Include in gross income amounts you withdraw to convert into a Roth IRA, any amount that would have
been taxable had you not converted it. Conversions can be done in two ways one way is through a trustee to
trustee transfer, the second way is by taking the IRA out of one account and depositing it into another
within 60 days from the date you receive it into a Roth IRA. Conversions are only allowed if your modified
adjusted gross income is $100,000.00 or less, and if you are married, you must file a joint return.
Single filers may also convert to a Roth IRA subject to the same income limit.
Conversions are not subject to the early distribution tax for people under the age of 59½.
In 1998 and only in 1998, if a conversion is done, you may calculate the tax ratably over the four-year period
beginning in the year of withdrawal. Ratably, is defined as, adding on one quarter of the taxable amount or
your IRA to your income for each of the next four years. The taxable amount is calculated on
Form 8606 and transferred either to the 1040,
or the Form 1040A IRA, distributions lines. If you do not qualify for a conversion your IRA distribution
is taxable and subject to penalty.
If you decide to convert back into a traditional IRA for any reason you may do so until the due date
for filing the return, only if the original conversion was a trustee to trustee transfer. There is no other
exception to the 60-day rule.
For information on Roth IRA distributions select Topic 428. For information regarding
conversions see Publication 590, Individual Retirement Accounts.
Forms and publications can be downloaded from this site,
or ordered by calling 1-800-829-3676.
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