An IRA is an individual retirement account. According to the Internal Revenue Service, a Roth IRA is subject to the same rules as applying to any traditional individual retirement account. The main difference is that contributions to a Roth IRA are not tax-deductible. Instead, qualified distributions of the funds are not taxed.
Contributions
Contributions to a Roth IRA can be made for life. The amount that can be invested in the account varies from year to year. As of 2009, people older than 50 years old could contribute up to $6,000 or the amount of taxable income, whichever is less. Income cutoffs also limit the eligibility of those who can make contributions to a Roth IRA. For example, in 2009, those filing a tax return as a single person cannot make an IRA contribution if their average gross income was greater than $176,000. The IRS allows taxpayers to make additional contributions in some years to encourage retirement savings. For example, in 2008, those older than 50 years old were allowed to contribute an additional $1,000 to their Roth IRA accounts.
Rollover
A traditional IRA can be converted into a Roth IRA when various conditions are satisfied. A conversion, or rollover, can take place within 60 days of distribution of funds, when changing trustees or within the purview of the same trustee. Taxes are paid on the funds before investing in the new accounts. Funds from an employer's 401(k) or annuity plan can be rolled over into a Roth IRA, as can military death benefits, settlements from approved lawsuits and airline payments.
Distributions
Money distributed from a Roth IRA in the same year the contribution was made is taxed as if the money was never invested. An additional 10 percent tax might be added to distributions made before the taxpayer meets the requirements for a qualified payment. Qualified distributions are not taxed. Qualified distributions can be made five years after the account was opened, and the person is at least 59 1/2, disabled or dead. There are a number of exceptions to the rules. Exceptions include turning 59 1/2 or becoming disabled, having significant medical expenses or having to pay medical insurance premiums after losing a job. After all distributions have been made on the account, taxpayers can take a tax deduction if there was a loss incurred on the investment.
Mandates
There is no mandate for investors to take distributions at a certain date such as the mandates required of traditional IRAs. After the death of the account holder, the traditional IRA rules apply and distribution must be made to the beneficiaries within a year of the Roth IRA account holder's death.
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